If the insurance regulator has its way, insurance companies can be fined and their employees imprisoned for talking too fast or using a font that is too small. These are but two of the many irrationally imprecise requirements in the proposed policyholder protection rules revealed to the insurance industry as an end-of-year present on 23 December 2016.
It is a principle of our law that common law crimes and statutory crimes must be reasonably particular, precise and clear. If something is prohibited under pain of punishment it must be described in language which is clear so that those affected need not guess or speculate what is forbidden. Unless there are clear and concise definitions of criminal behaviour it will depend on the personal views of a judge or magistrate whether the accused person will be branded a criminal or not. For instance, in 2003 the Scottish high court held that the offence of ‘shameless indecency’ was so vaguely defined it could not be recognised as a crime in their law.
This is part of our principle of legality. A founding principle of our Constitution is the rule of law which requires laws that have a clearly ascertainable meaning. Our courts, for example, refused to uphold a prohibition on the possession of pornography which was so broadly worded that it was not clear what was prohibited.
The drafters of the policyholder protection rules appear to have forgotten this principle. Insurers must have procedures in place to ensure that policyholders “are confident that they are dealing with an insurer where the fair treatment of policyholders is central to its culture”. Treating policyholders fairly is obviously a good thing. But what was intended to be an outcomes-based philosophy, has potentially become criminal conduct. More examples. An insurer may only insure a person’s life if it has obtained the written consent of the person whose life is insured. How is that supposed to be done by an employer who takes out a group personal accident policy in which thousands of employees and their families get the benefit of fatal accident cover? If you are advertising a policy and ‘diminish’ the information in the advert by using a small font size or by the speed at which speech is delivered during a call-centre sale you can go to jail. Try and argue that in a criminal court. The outcome of the case could depend on whether the advertisement was looked at on a billboard or a cellphone and it may depend on the eyesight of the judicial officer.
An insurer, according to the proposed rules, cannot terminate a policy for a period of 30 days after the date on which the insurer receives proof that the policyholder ‘is made aware of the intended termination’. If the insurer gives notice to the chosen address of the policyholder in a manner provided for in the policy what proof must it receive that the policyholder is aware of the intended termination? If the policyholder simply decides not to open the envelope of a letter of termination or doesn’t check incoming emails they can keep the policy alive indefinitely, despite the insurer being entitled to terminate the policy.
These are just some of the many examples in the proposed rules leading to unpredictable criminal conduct. They might be laughable if they didn’t have such serious consequences. The new system by which laws are drafted by regulators, instead of state departments with deep experience in the principles of statutory drafting, is leading to poor outcomes for everyone. These laws will not survive a challenge of the ground of illegality but challenges are slow and expensive. Treating customers fairly is a good thing. But so is treating insurers fairly.
This article first appeared in Business Day Law and Tax Review