On 1 September 2009 the Insurance Regulation 2004 (NSW)
(Regulation) was repealed and replaced with the
Insurance Regulation 2009 (NSW). The new provisions have
significant implications for providers of reinsurance, and brings
NSW in line with other State and Commonwealth insurance legislation
As the Explanatory Note makes clear, the Regulation is largely
the same as its predecessor, but reinsurance is now included as a
class of insurance contract exempt from certain sections of the
Insurance Act 1902 (NSW).
The relevant text of Regulation 4(b) now reads:
'Contracts of insurance that are subject to the
Insurance Contracts Act 1984 of the Commonwealth and
contracts of reinsurance are exempt from the operation of section
18, 18A, 18B and 19 of the Act.'
Prior to the amendments, sections 18, 18A, 18B and 19 have
proved problematic for reinsurers in NSW. These provisions were
originally designed to remedy perceived inequalities between an
unsophisticated insured and a commercial insurer in a situation of
direct insurance. However, judicial findings that the Act applied
to contracts of reinsurance has, in the past meant that in NSW the
reinsured has been at an advantage during reinsurance contract
To understand the advantage, it is appropriate to review the
relevant sections of the Insurance Act 1902:
In any dispute arising out of a contract of insurance, the court
may excuse a failure by the insured to observe or perform a term or
condition of the contract, if it appears to the court that the
insurer was not prejudiced by the failure.
Contracts of insurance can remain in force where
misrepresentation or omission led to the contract being entered
into, unless the statement or omission was material to the insurer,
and the action was fraudulent or deliberate, or the insured knew or
ought to have known that the statement or matter was material to
the insurer in relation to the contract.
Where the provisions of a contract of insurance limit liability
of the insurer to indemnify the insured on the happening of
particular events or circumstances, and that event or circumstance
arises, the insured shall remain indemnified if the applicable loss
was not caused or contributed to by the occurrence of those events
The insured is not bound by any provisions in the contract of
insurance that required the submission to arbitration of any matter
arising out of the contract of insurance.
There have been two significant cases considering the
application of these sections in the NSW Supreme Court.
In the decision of Einstein J in HIH Casualty & General
Insurance Ltd (in liquidation) v Wallace , it was held
that "insurance" for the purposes of the Act included
reinsurance. As a consequence, section 19 of the Act applied to
reinsurance contracts in NSW, and arbitration clauses in the
reinsurance contract in question were not binding on the
In Westport Insurance Corporation v Gordian Runoff Ltd
, Einstein J followed his previous decision on the
application of the Act and clarified the operation of section 18B.
He held that section 18B is concerned with policy exclusions or
limitations, which are triggered by a particular event or
circumstance, where loss is causally unrelated to that event or
circumstance. The section could not be concerned with the
underlying scope of cover.
The Regulation now places reinsurance with other exempted
classes of contracts such as marine insurance, life insurance, or
any contract of insurance subject to the Insurance Contracts
Act 1984(Cth). It should be noted that the Regulation does not
apply to reinsurance contracts entered into before 1 September
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.
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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