The Insurance Contracts Amendment Bill 2013 was passed by Parliament in June 2013.
The Bill amends the Insurance Contracts Act 1984 (“ICA“) in a number of significant ways, including:
- Extending the rights of third party beneficiaries;
- Requiring insurers to clearly inform insureds about their duty of disclosure;
- Making changes to the duty of disclosure when eligible contracts of insurance (including motor, home, sickness and accident, consumer credit and travel) are entered into and renewed;
- Providing ASIC with powers to vary, suspend or cancel an insurer’s licence for a breach of the duty of utmost good faith;
- Extending the duty of utmost good faith to third party beneficiaries;
- Enabling ASIC to take action against insurers for breach of the duty of utmost good faith by making it a breach of the ICA.
Also of particular relevance to our clients are the changes to rules regarding bundled contracts (s.9(1)). Pursuant to this section, insurance contracts that include both ICA type cover and non-ICA type cover will be subject to new rules which effectively split the contracts into separate contracts for the purpose of the ICA. Mixed workers’ compensation and common law personal injury cover will be totally excluded from the ICA. Previously, the common law cover was subject to the ICA.
Other relevant changes include:
Changes to duty of utmost good faith
The duty of utmost good faith in section 13 is extended to apply to third party beneficiaries from the date of the contract. A breach of the duty by the insurer will amount to a breach of the ICA and allow ASIC to take represented action for any breach.
Notices required under the ICA will be able to be delivered electronically.
Insured’s Duty of Disclosure
When considering what a reasonable person could be expected to know about a matter to be relevant for the purposes of disclosure, two new non-exclusive factors will be taken into account, namely:
- The class of persons who would ordinarily be expected to apply for cover of that type;
- The nature and extent of cover provided by the policy.
Perhaps the most controversial of the changes proposed to the ICA – namely a proposal to impose unfair contract term laws on standard (retail) policies of insurance was not included in the recent amendments.
Currently, unfair contract laws apply to consumer contracts for financial products and financial services, but general insurance contracts are exempt. If these amendments are adopted, Courts will render void terms in insurance contracts which are seen to be unfair.
A term will be unfair if:
- The term would cause a significant imbalance in parties’ rights and obligations under the contract;
- The term would cause detriment to a party if relied on; and
- It was not reasonably necessary to protect the interests of the party relying on it.
The further amendments will not pass before the election in September 2013. Whether a successive government will pursue the further amendments remains to be seen.