Five years after the review of the Insurance Contracts
Act by Alan Cameron and Clayton Utz consultant Nancy Milne,
and three years after the exposure draft bill was released, the
Insurance Contracts Amendment Bill 2010 has been introduced into
Parliament. Although most of the Bill is similar to
the exposure draft of 2007, there have been some changes as a
result of industry consultation which we'll briefly highlight
in this Alert.
The main areas of the Insurance Contracts Act being
The Bill amends the Insurance Contracts Act in these
duty of utmost good faith
bundled contracts and unbundling contracts
powers of ASIC, including to take representative actions by
ASIC on behalf of third party beneficiaries
disclosure and misrepresentations, including remedies
cancellation of contracts
third parties' rights and obligations
insurers' defences in actions by third party
What's changed since the exposure draft Insurance Contracts
Two new sections have appeared since the exposure draft. There
is now a right in section 55A for ASIC to take representative
actions on behalf of third party beneficiaries, and a new section
59A deals with the cancellation of life insurance contracts by the
There have also been some drafting changes to the sections
expiration and renewal
unbundling of life insurance contracts
the rules for requests by third party beneficiaries for
information from insurers.
We look at the more important changes below.
Disclosure requirements - some changes
Section 21A which deals with the duty of disclosure before the
original entering into of an "eligible" contract of
insurance now precludes open ended requests for disclosure.
Insurers must ask specific questions.
A new section 21B deals with the duty of disclosure before an
"eligible" contract of insurance is renewed. The key
issue here is that insurers must ask the insured before renewal to
answer specific questions relevant to the decision to renew and the
terms of renewal. However in addition to this insurers can ask the
insured to confirm or update previous disclosure. There will be no
duty to disclose beyond these two options on renewal.
Claims made and notified policies - changes since the exposure
The biggest change is the removal of proposed changes to
non-notification and relief under section 54. The exposure draft
proposed givinginsureds a 28-day window from the end of the policy
period to notify the insurer of known facts that might give rise to
a claim. If they did not do so, the insurercould thenrefuse the
Claims against insurer in respect of liability of insured or
third party beneficiary
If a person is owed damages by an insured under a contract of
liability insurance, that contract provides insurance cover in
respect of the liability, and the insured is either dead or cannot
be found, that person currently can sue the insurer to recover an
amount equal to the insurer's liability under the contract in
respect of the liability of the insured. The exposure draft bill
proposed to expand this right to sue an insurer in two ways:
first, the provision would cover not only insureds who owe
damages, but also third party beneficiaries under the contract of
secondly, the person could sue the insurer not only when the
insured or third party beneficiary is dead or missing, but also if
the person has obtained judgment against the insured or third party
beneficiary and they have no money or assets to pay the
This second route has been dropped in the final version of the
bill - obtaining judgment against a broke insured or third party
beneficiary won't entitle you to sue the insurer.
"A contract" versus "the contract"
Currently an insurer can avoid a life insurance contract where
there has been misrepresentation or a failure to comply with the
duty of disclosure "if the insurer would not have been
prepared to enter into a contract of life
insurance with the insured on any terms if the duty of disclosure
had been complied with or the misrepresentation had not been made
[emphasis added]". This has been interpreted to mean any
contract at all. The draft bill would change section 29(3) to refer
to "the contract" so that even if an insurer would have
entered into a slightly different contract, it can still avoid the
contract where there has been misrepresentation or a failure to
comply with the duty of disclosure.
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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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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