Government to explore options for extension of unfair
contract terms to insurance
Bearing gifts we traverse afar...
As consumers look to our Government to 'guide us to thy
perfect light', the Productivity Commission, in its 2008
Review of Australia's Consumer Policy Framework, recommended
that new generic national consumer laws be implemented across all
sectors of the economy. This recommendation included national
unfair contract terms (UCT) laws.
The UCT laws were implemented as laws of the Commonwealth, and
of Victoria and New South Wales, on 1 July 2010 and now extend to
all other States and Territories. The UCT laws apply to most
financial products and financial services through the
Australian Securities and Investments Act 2001
(ASIC Act). However, UCT laws do not currently
apply to insurance contracts.
As part of the pre-Christmas regulation rush (see previous
here), Treasury has now also released a draft regulation impact
statement for public consultation in order to receive feedback on
potential options to ensure that consumers who purchase insurance
are afforded the same level of protection as consumers of financial
products and financial services under the UCT laws.
In our March 2010 update (see
here), we discussed the implications of applying UCT principles
to insurance products. In our view, continued development in this
area has the potential to see the broadest reforms to insurance
contract regulation since the introduction of the Insurance
Contracts Act 1984 (the Act).
Westward leading, still proceeding...
To date, insurers have strongly opposed the application of the
UCT regime to insurance on the basis that the Act already
adequately protects insureds. In addressing this issue, Treasury
identifies at paragraph 2.51 the following key points about the
there is a risk of unfair terms in standard form insurance
contracts causing loss or damage to policyholders and third party
beneficiaries which, in some situations, could be
there are existing laws that might help to prevent loss or
damage to policyholders due to reliance on unfair contract terms;
the extent to which those laws are effective, or
potentially effective, to address situations of UCT is debateable,
but the existing laws:
do not cover the same breadth of circumstances as UCT
are directed at providing remedies in individual cases
where an objectionable term is sought to be relied upon, whereas
UCT laws are directed at eliminating objectionable terms from
standard form contracts; and
have been identified by the Senate Economics Legislation
Committee and the Natural Disaster Insurance Review as not
providing adequate protection to consumers.
There also remains some debate as to whether UCT laws for
insurance contracts should be implemented via amendment to the Act
or rather, by expanding the reach of the UCT laws under the ASIC
Despite identifying a number of 'problems' (e.g.
defining what the 'main subject matter' of an insurance
contract is) it appears likely that the government will press ahead
with the application of the regime and is not likely to let
insurers off the hook.
This is on the basis that the current regime arguably provides a
more difficult avenue for redress in terms of the onus of proof,
remedies and clarity of the relevant test.
Interested parties are invited to comment on the draft
regulation impact statement and the closing date for submissions is
17 February 2012.
To review the draft regulation impact statement in full, click
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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