When I began practising insurance law in New Zealand back in 2012, it was apparent that the legal framework was a bit haphazard. This wasn't a new criticism, even ten years ago. I wrote in 2013 https://www.wynnwilliams.co.nz/Publications/Articles/Insurance-Contracts-to-be-bound-by-fairness about the (then) government's plan to advance the Insurance Contracts Bill, which had been languishing for a long time already. The Law Commission published a report back in 1998 called Some Insurance Law Problems. Since then, there has been no update. The key rules on insurance still come from six different Acts of Parliament, some over 100 years old. There is common law too which is crying out for codification - the duty of utmost good faith, for example. This state of affairs isn't ideal, but insurance law has basically ticked along well enough in New Zealand for the past 25 years.
Now though, finally, there is movement, with the Insurance Contracts Bill released and under consultation. The main changes proposed are:
- To change the law about non-disclosure, placing the onus on the insurer to ask the correct disclosure questions, rather than on the policyholder to disclose material points even if not asked directly;
- To codify that businesses must present to the insurer a 'fair presentation of risk', while private individuals must simply answer the questions asked of them accurately;
- To introduce 'proportionate' remedies if a policyholder fails to disclose something, or misrepresents the risk. Currently, avoidance of the policy (i.e. declaring it never to have existed), is the one-size-fits-all remedy where non-disclosure is discovered, even if the insurer might have offered insurance on modified terms if it had known all the details.
- To allow some terms of insurance contracts to be declared 'unfair'. At present, insurers have extra exceptions to some provisions of the Unfair Contract Terms Act. For example, terms limiting the liability of the insurer to pay a claim in certain circumstances are not currently able to be assessed through the lens of fairness. The bill proposes that they should be open to that scrutiny.
- To endorse in statute the duty of utmost good faith, the common law duty for both sides to act towards each other in good faith. This development would endorse formally a breach of utmost good faith as a cause of action (and potentially a defence) in litigation concerning insurance policies.
There are other changes proposed which are even more consumer-focused, including a proposed requirement for policies to be in plain English, and for the Financial Markets Authority to monitor insurer's compliance.
The Bill is still open for consultation. Feedback from the industry has been largely positive, probably due to the general acknowledgement that new legislation was needed. Because the current statutory framework is so haphazard, some insurers have adopted some of these changes already. There will always be a period of increased uncertainty with any new statute, but the changes proposed in the Insurance Contracts Bill all make sense. It will be good finally to have a logical and central source of insurance law in New Zealand.
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