The UK Insurance Act 2015 (the UK Act), which comes into force on 12 August 2016, contains some similar provisions to the Australian Insurance Contracts Act 1984 (ICA). Australia, however, has the advantage of more than 30 years of Appeal Court determinations on their provisions. In this article, we examine two Australian cases dealing with provisions equivalent to "Fair Presentation" and "Terms not relevant to the actual loss" – both key provisions that will be introduced by the UK Act.
Fair Presentation UK Act – S.3 & S.7
Insured required to make Fair Presentation of every material circumstance which the insured knows or ought to know.
A circumstance or representation is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms.
Australian ICA – S.21
Imposes upon the insured a Duty of Disclosure. The insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that the insured knows or ought to know is a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.
Permanent Trustee Australia Ltd And Another V FAI General Insurance Company (In Liq) (2003) 197 ALR 364
The Professional Indemnity insurance of the Permanent companies was due to expire. The lead underwriter asked for some information about the business of the Permanent companies and offered to provide a 30 day extension, at pro-rated premium, of the existing cover while the information was being obtained. The Permanent companies accepted this offer and asked FAI, one of the co-insurers, to also agree, which they did. Permanent did not disclose their intention not to invite FAI to participate in the cover for the following year if they obtained satisfactory terms from other insurers.
During the period of extension, Permanent notified circumstances which might give rise to a claim on the policies. A claim was subsequently made and Permanent sought indemnity from their insurers. Having become aware of the decision not to invite them to participate in the following year's cover, FAI refused to indemnify Permanent.
At trial, the primary judge found that Permanent had breached their duty of disclosure under S.21 of the ICA because their intention not to offer an annual renewal to the FAI, if they obtained satisfactory quotes from another insurer, was "relevant" to FAI's decision to accept the risk of the 30-day extension.
The High Court granted Permanent's appeal stating that the question posed by S.21 was a particular insurance hazard. The focus was not on the broader question of commercial willingness of the insurer to accept risk, or any emotional or individual reactions to the question.
"Whether the appellants did or did not intend to renew their policy beyond a month... was most certainly not a matter relevant to the decision of the respondent whether to accept the risk. Nor was it a matter which would, or could reasonably be likely to affect, the terms upon which the decision to accept the risk."
Terms not relevant to the actual loss UK Act – S.11
Applies to a term of a contract of insurance, other than a term defining the risk as a whole, if compliance with it would tend to reduce the risk of loss of a particular kind, at a particular location or at a particular time.
If the term has not been complied with, the insurer may not rely on the non-compliance to exclude, limit or discharge its liability if the insured shows that the non-compliance could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.
Australian ICA – S.54
Where the effect of a contract of insurance is that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act or omission of the insured or of some other person, being an act that occurred after the contract was entered into... the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act (except where act causative of loss).
FAI General Insurance Co Ltd V Australian Hospital Care Pty Ltd – (2001) 180 ALR 374
FAI insured Australian Hospital Care (AHC), who owned and operated hospitals, under a claims made and notified policy. During the period of cover, AHC became aware of an occurrence that might give rise to a claim under the policy, but omitted to notify FAI. A claim was later made after the policy had ended. FAI denied indemnity.
The High Court of Australia held that the effect of the contract
of insurance was that FAI could refuse to pay the claim by reason
only of the fact that the respondent omitted to give notice of the
occurrence to FAI. As such, S.54 was triggered and, subject to any
prejudice being demonstrated, FAI could not refuse to pay the
claim. No prejudice to
FAI's interests was suggested.
"Labelling contracts of insurance as "claims made" or "claims made and notified policies", as distinct from "occurrence policies", may be convenient short forms of reference. These labels are, however, not a substitute for strict attention to the terms of the particular insurance contract in question and to the operation of the relevant statutory provisions in connection with that contract."
While there are some very notable differences between the UK and Australian provisions, there are also some significant similarities. Both pieces of legislation are remedial and consumer-focused and likely to be interpreted accordingly. Decisions like Australian Hospital Care had a significant impact on the Australian Professional Indemnity market. Whether UK courts will adopt a similar approach to interpretation, particularly of S.11, remains to be seen.
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.