Australia: Coming soon: Changes to the Insurance Contracts Act affecting life insurers and third party beneficiaries

Focus: Insurance Contracts Amendment Act 2013
Services: Financial Services, Insurance
Industry Focus: Financial Services, Insurance

The Insurance Contracts Amendment Act 2013 (Amendment Act) will see a number of reforms to the Insurance Contracts Act 1984 (ICA) over the next year and a half. The commencement of the new provisions are being staggered on various dates across the period between 28 June 2013 and 28 December 2015.

A number of the new provisions are due to commence on 28 June 2014. These provisions affect life insurers and third party beneficiaries under general insurance contracts. The Amendment Act seeks to align, as closely as possible, the rights and obligations of the insured with those of a third party beneficiary under a contract of insurance. This article discusses some of the changes taking place at the end of the month, and the impact of these changes.

Life insurers

Expansion of remedies for non-disclosure and misrepresentation

The Amendment Act will significantly extend the remedies available to life insurers in situations of non-disclosure and misrepresentation.

The new provisions permit an insurer to avoid a life insurance contract within three years of its commencement, if it can establish that it would not have entered into the contract if it were aware of the non-disclosure or misrepresentation. This requirement will be less onerous for the insurer than those currently contained in the ICA, which require an insurer to establish that it would not have entered into the contract "on any terms".

The ICA currently permits a life insurer to alter the sum insured within three years of the commencement of the contract, in the event that an insured fails to comply with their duty of the disclosure, or is found to have made a misrepresentation. Insurers may make such an amendment according to the formula specified in the ICA. The Amendment Act provides insurers with the ability to alter the sum insured beyond the current three year period, so that such variations can be made at any time upon discovery of the non-disclosure or misrepresentation.

These amendments are likely to result in a greater risk to insureds who fail to comply with their disclosure obligations. As the formula provided in the ICA reduces the sum insured by reference to the premiums that would have been charged but for the non-compliance, variations to the sum insured may continue for the life of the contract, potentially resulting in significant reductions in payouts.

Insurers may also now vary a contract in a manner other than that provided by the formula specified in the ICA. A variation may be made which places the insurer in the same position as if the duty of disclosure had been complied with, or the misrepresentation had not been made. The Amendment Act does, however, impose some restriction on the extent of any variation, which must not be inconsistent with the position that other reasonable and prudent insurers would have been in, had they entered into a similar contract for life insurance.

It should be noted that contracts with a surrender value (an amount payable to an insured upon cancellation of a contract for life insurance), or that provide a death benefit will be largely exempt from these changes. Life insurers will only be able to amend these contracts according to the scale, within the existing three year period.

Insurer's defences in actions by third parties

The Amendment Act specifically permits an insurer, when defending an action bought by a third party beneficiary, to raise defences relating to the conduct of the insured. This will include conduct which occurred both before and after the contract was entered into, such as conduct involving non-disclosure or misrepresentation.

Third party beneficiaries

Rights and obligations of third party beneficiaries under life insurance contracts

The changes to be introduced by the Amendment Act clarify that a third party beneficiary has the right to recover from an insured money payable under a life insurance contract. It also specifies that a third party has the same obligations in respect of their claim against the insurer, as if the third party beneficiary was the insured.

Non-disclosure or misrepresentation by members of group life insurance schemes

The Amendment Act also clarifies that if an insured breaches their duty of disclosure or makes a misrepresentation after joining a superannuation, retirement or group life scheme, but prior to life insurance cover being provided to them by the group, the non-disclosure or misrepresentation will be deemed to have occurred prior to the commencement of the contract.

Written notice for third party beneficiaries of contracts for liability insurance

Third party beneficiaries are now able to seek from an insurer written notice as to whether the insurer admits that a contract of liability insurance applies to a claim, and written notice as to whether the insurer intends to conduct negotiations and legal proceedings in respect to the claim.

Failure on behalf of an insurer to provide this written notice will result in the insurer being unable to refuse payment of the claim on the grounds that the third party beneficiary breached a contract of liability insurance by settling a claim against the insurer, or admitting liability. A third party beneficiary is defined broadly by the ICA as any person who is not a party to a contract, but is referred to, by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends. Previously, this protection was offered only to the insured.

Right of third parties to recover against insurers

Currently, the ICA permits a third party to recover from an insurer damages payable to them by an insured, in the event that the insured is deceased or cannot be located. The amendments specifically extend this right of recovery to damages payable by a third party beneficiary of a contract for liability insurance.

ASIC to have power to represent third party beneficiaries

On 28 June 2013, the Australian Securities and Investments Commission (ASIC) was granted the power to bring an action against an insurer on behalf of a third party beneficiary. Previously, this assistance was restricted to actions bought on behalf of an insured.

The instances in which ASIC may bring an action against an insurer are broadly defined, with ASIC being permitted to bring an action when they are of the view that an insured or third-party beneficiary has suffered, or is likely to suffer, damage as result of a breach of the ICA. It should therefore be noted that ASIC may bring an action on behalf of a third party beneficiary, under the provisions relating to third-party beneficiaries contained in the Amendment Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.