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Consequential loss exclusion provision needs clearer expression
The Financial Services Authority (FSA) has issued a statement on the application of the Unfair Terms in Consumer Contracts Regulations 1999 (1999 Regulations) concerning the use of “consequential loss “provisions in general consumer insurance contracts.
Although expressly concerning insurance products here it can be argued to have a wider extension in that it demonstrates how the authorities may seek to make clearer for consumers typical legal terminology which it feels can be sometimes too unclear or ambiguous and which can be rewritten in clearer “plain English”.
The Regulations in question state:
- 7.1- any written term in a consumer contract shall be expressed in plain and intelligible language.
- 7.2- if there is doubt as to the meaning of any term the interpretation that is most favourable to the consumer shall prevail.
- 5.1- a term in a consumer contract shall be regarded as unfair and unenforceable if… it causes significant imbalance to the parties’ rights and obligations, to the detriment of the consumer.
which were applied by the FSA here to an insurance provision excluding “consequential loss” meant in its view the term:
- Was not written in plain English as it referred to an expression with a legal meaning which meant a court could construe this in favour of the consumer, possible resulting in the exclusion not being enforced and;
- Could be unfair and unenforceable on the grounds that it was ambiguous as it could leave the consumer unaware of the extent of his insurance cover.
The Unfair Terms in Consumer Contracts Regulations 1999 (1999 Regulations) have most recently been in the wider press following judgements concerning unfair bank charges-search our website for more on this.
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