Background
In March 2003, the Ministerial Meeting on Insurance Issues was held and one of the outcomes of the meeting was a view that the Insurance Contracts Act 1984 ('the Act') was impacting on the cost and availability of professional indemnity and other classes of insurance. In September 2003, Senator Helen Coonan and Senator Ian Campbell, jointly announced that the Government would be undertaking a comprehensive review of the Act.
The review was undertaken because it was thought that there was:
- A reduction in the capacity of the Australian professional indemnity insurance market
- An increase in premium for PI insurance because of reduced capacity and higher insurance risks
- Less policy coverage, due to restrictive terms and increased conditions
- Increased self insurance
- Businesses increasingly insuring with unauthorised foreign insurers (DOFI's) (these businesses often have no ability to determine whether the unauthorised foreign insurer will be able to honour all claims).
Alan Cameron A.M. and Nancy Milne were appointed to conduct the review. The objective of the review was to make recommendations aimed at improving the overall operation of the Act through correcting deficiencies and clarifying ambiguities in its operation.
What are the major changes?
On 17 March 2010, the Insurance Contracts Act Amendment Bill 2010 was introduced into Federal Parliament. If passed, the following areas will become the law in Australia.
- Duty of utmost good faith ("UGF") - s13 will be amended so that a breach of the duty of UGF is a breach of the Act
- Third party beneficiaries - the duty of UGF will apply to them and they won't now need to bring a private legal action to enforce the duty
- ASIC will be permitted to bring a representative action on behalf of a third party beneficiary where there has been a breach of the Act or where the insured has suffered loss (s55A)
- Disclosure requirements - s21A 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. The duty will be extended to third party beneficiaries who are not the named insured. 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. 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 against an insurer in respect of liability of an insured or a third party beneficiary - Third parties with damages claims against an insured or third party beneficiary who has died or cannot be found, may recover directly from the insurer. The proposed amendment means that a third party can recover against the insurer for rights that would otherwise have been available to the third party beneficiary
- Life insurance contracts - 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
- Additionally, where a person who became insured under a contract of insurance either misrepresented or did not disclose matters that should have been disclosed prior to entering into the contract, the insurer can avoid the contract under s28 (general insurance) and s29 (life insurance). This has been amended to only permit the insurer to avoid the contract if the insurer would not have entered that particular contract (as opposed to the current standard of any life insurance contract) on any terms
- Electronic notification - notices, documents and information can be sent electronically provided the conditions contained in the Electronic Transactions Act 1999 are met
- Workers Compensation - still excluded from the operation of the Act notwithstanding that contracts of insurance may include cover against employer liability at common law to pay damages for employment-related personal injury
- Subrogation - the subrogation rights contained in Part VIII( s65 - s68) are extended to claims made by third party beneficiaries as well as by insureds.
Comment It is interesting to observe that most of the recommendations made by the Review Panel have been accepted but the troubled interplay between s40(3) and s54 has not yet been completely settled.
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