SUBMISSION BY
LEGAL AID COMMISSION OF NEW SOUTH WALES
Review of the Insurance Contracts Act 1984 (Cth)
Response to Issues Paper on Second Stage – Provisions
other than section 54
April 2004
Legal Aid Commission of NSW
323 Castlereagh Street, Sydney 2000
Ph: 9219 5875
Fax: 9219 5070
Contributors:
David Coorey
Guy Donnellan
Alex Grosart
Timothy Smith
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INTRODUCTION
These are submissions of the Legal Aid Commission of New South Wales (“the
Commission”) in response to the Issues Paper on the Second Stage:
Provisions other than Section 54 (the “Issues Paper”), published by the Review
of the Insurance Contracts Act 1984 (the “Review”) in March 2004.
To assist the Review, we have put our submissions in the form of answers to
the questionnaire set out in the Issues Paper. We have also set out a brief
background summarising our experience in insurance matters, our view of the
current insurance market, and the general principles which the Commission
thinks should underpin a review of the current legislative regime.
We have not answered every question in the Issues Paper but, for
convenience, we have retained the original numbering of those we have
responded to.
EXECUTIVE SUMMARY
In short, the Commission‟s main submissions are that:
Section 15 should be repealed.
The current “reasonable person” test of disclosure contained in Part IV
of the Insurance Contracts Act 1984 (Cth) (the “IC Act”) should be
amended to take account of the “intrinsic” characteristics of insureds
(such as their knowledge, experience or cultural background).
Section 21A should be extended in its operation to cover all domestic
forms of insurance and to apply at renewal and when a contract of
insurance is varied. Similarly, the section 22 warning to insureds about
the duty of disclosure should be extended to apply at renewal and when
a contract is varied. The requirements for the form of warnings to be
given should be improved.
The standard cover regime contained in section 35 of the IC Act should
be retained as important form of consumer protection. Neither the
Product Disclosure Statement (“PDS”) regime nor section 37 of the IC
Act are a sufficient substitute for standard cover. Their role should be to
provide additional consumer protection on top of section 35.
Section 35(2) and section 37 should be amended to repeal the 1985
amendments in order to give effect to the term „clearly inform in writing‟.
Insurers should provide a notice setting out any derogation from
standard cover or any unusual terms in insurance contracts.
Part VII of the IC Act should operate so that:
a) insurance policies are never terminated (whether by lapse or
cancellation by an insurer) without sufficient notice to insured
persons; and
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b) the ground of any cancellation is always made clear to the
insured person.
BACKGROUND
The Commission’s perspective
The Legal Aid Commission of NSW concerns itself with the provision of legal
aid and legal services within NSW to disadvantaged persons. The Commission
has approached its response to the Review of the Insurance Contracts Act
1984 from that perspective. More particularly, the Legal Aid Commission is
concerned about the impact that any change to the Insurance Contracts Act
may have on members of the public whohave limited financial means; or who
are minors; or who may be poorly educated; or do not understand or speak
English fluently; or who suffer physical disabilities or impairments to intelligent
and organised thought.
The modern insurance market
Most members of Australian society today will have to consider entering into a
contract of insurance at some time or other. Insurance has become more than
the shield against risk for merchants and traders by sea who may have been
the first types of policy holders. It is now a widespread, integral, and in many
cases essential part of our society. Today, when the insurance industry has a
problem with its profits and cannot offer policies at reasonable prices, there is
said to be „a crisis‟.
Similarly, for quite some time now, insurance is no longer a typically business
activity in which both sides of the contract have an equal or comparable
understanding of the legal implications of the contract. Most people have no
direct knowledge of the letter of insurance law. Instead, they make their
decisions according to their perceptions of the way in which insurance policies
actually operate. They will probably be oblivious to the complex legal
considerations that arise from such provisions as sections 13, 21, 35, 54 & 60
of the Insurance Contracts Act 1984. They may have no idea that the Insurance
Contracts Act 1984 even exists.
However, it is to be remembered that insurance policies arise from a contract,
where the interests of the insured, as well as the insurer, deserve suitable
protection. It is not appropriate that the operation of insurance policies be an
arcane affair, largely beyond the control of ordinary insured persons.
Insurance companies have numerous employees, and large financial reserves,
and instant access to the best legal assistance. Most insured persons do not.
Today, the insurance industry must write vast numbers of policies for motor
vehicle damage, home and contents loss and damage, travel, injury, sickness
and disability, life insurance, and consumer credit. Such policies may not earn
a large premium for each policy, but the policy itself is vital for the financial
safety of the particular insured.
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Important general principles
For the above reasons, the Commission submits that the following general
principles should underpin the proposed review of the IC Act:
In determining the obligations of insureds under the IC Act, courts and
tribunals should be directed to have regard to their general background,
including their education level, knowledge, experience and cultural
background.
Insurers must make it clear to prospective insured persons precisely what
information they require in order to decide whether to assume the
insurance risk. Insurers should assume any risk in failing to clarify any
matters disclosed at the time of the insurance proposal.
Insurance policies must be clear and reliable. They should be expressed in
plain English wherever possible. Any lack of clarity should be resolved in
favour of the insured.
So far as possible, standard policies should be on offer, so that their
operation can be commonly and easily understood. There must be
regularity in the common types of insurance policies. That is not to prevent
insurers from also offering special policies.
Insurers must be obliged to bring to the clear attention of insured persons
limitations on the insurance cover, and any duties imposed on insured
persons to ensure that the insurance cover is maintained. In particular,
insurers should be required to alert insured persons to common
misunderstandings (such as that storm and tempest policies do not
necessarily cover floods).
Insurers should not use terms in insurance policies that have special
meanings that are likely to be unknown to insured persons.
Insured persons should be able to rectify unfairness in the formation and
operation of insurance contracts, and still retain the benefit of the
insurance.
The practice of issuing cover notes must be regular, reliable, and clearly
understood by insured persons.
Insured persons should be clearly and sufficiently reminded of their duties
whenever they renew an insurance policy.
No change to an insurance policy should occur without it being specifically
drawn to the attention of the insured person, on appropriate notice.
Insurance policies should not be cancelled (in the absence of fraud)
without sufficient notice to allow insured persons to obtain substitute
insurance before cover lapses.
Insurers should not be permitted to rely on breaches of insurance policy
terms by insured persons, where no substantial harm has been caused to
the insurer‟s interests.
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If an insurer alleges that an insured person is guilty of misrepresentation,
fraud, or breach of a policy term, the insurer must disclose sufficient of that
matter to enable the insured person to properly answer the allegation.
Claims on insurance policies should be determined expeditiously.
Proper effect must be given to the duty of good faith imposed on both the
insurer and insured.
Disputes must be resolvable without resort to expensive litigation.
Generally, insurers should not be permitted to damage the insurance credit
record of potential insured persons by refusals to insure them, or by
refusing to renew policies, or by cancellations or rescissions, when they
have no substantial basis for doing so.
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RESPONSE TO THE ISSUES PAPER
1.1 Do the requirements of the FSRA reproduce or replicate the IC Act
in any specific notable areas (other than the standard cover
provisions)? For example, does there need to be any specific
rationalisation of pre-contractual disclosure requirements on
insurers under the IC Act, given the FSRA disclosure regime?
1.2 If so, to what extent are changes necessary to reduce the
duplication of information for insureds (while not materially
diminishing consumer protection)?
See the comments below in response to Issues 5.1, 5.2, 5.4, 5.5 & 5.6
4.1 Should there be a reconsideration of the mixed
objective/subjective test of the insured’s duty of disclosure?
Yes. The requirement in section 21(b) that an insured disclose all matters that
“a reasonable person in the circumstances” could be expected to know as
being relevant to an insurer is unfair and should be amended. Under this test, a
court or tribunal will take no account of the intrinsic circumstances of the
insured (such as literacy, education and cultural background) in determining
what matters they should be expected to know might be relevant to an insurer.1
In our experience, this test of materiality disadvantages non-commercial
consumers of insurance products, particularly less sophisticated insureds and
those from non-English speaking backgrounds. The disadvantage suffered by
consumers in this regard is unfair for the following reasons:
a) In effect, this duty requires all insureds to have a degree of understanding of
an insurer‟s underwriting guidelines, which is generally a matter of
considerable complexity. Many insureds, whilst acting in good faith, would
be unable to comply with such a duty;
b) Insurers are in a far superior position to know what matters are relevant to
their assessment of a particular risk; and
c) Insurers sell to a wide market and should be expected to take individual
members of their target markets as they find them (subject to the principle
of utmost good faith)2;
1
Twenty-first Maylux Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd (1990) VR 919; Dew v
Suncorp Life and Superannuation Ltd [2001] QSC 252McCabe v Royal & Sun Alliance Life
Assurance Australia Ltd [2003] WASCA 162;
2
ALRC 20, Insurance Contracts, at para 183.
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The suggested duty
An appropriate duty of disclosure should have regard to the “intrinsic factors” of
an insured referred to above, whilst retaining the requirement for them to act
reasonably. This latter requirement would ensure that the test does not become
a purely subjective inquiry in which an insurer is precluded from any remedy for
innocent non-disclosure.
As originally suggested in the 1982 Australian Law Reform Commission‟s
Report No.20, on Insurance Contracts, a more appropriate requirement would
be for an insured to disclose all matters which a “reasonable person in the
circumstances of the insured” could be expected to know as being relevant.
4.2 Should there be a revised duty of disclosure applying to all
policies whereby potential insureds are required to answer
honestly all of a series of specific and relevant questions put to
them by an insurer?
Section 21A contains such a requirement in relation to most personal and
domestic insurance policies which are of concern to our client base. For the
reasons set out in 4.3 (see below), the effect of this section should be
expanded to cover all forms of domestic (non-commercial) insurance (including
life insurance and domestic occupier‟s liability policies).
The Commission does not have a view as to whether such a provision should
extend to commercial forms of insurance. See 4.4 for the Commission‟s
submission in relation to life insurance.
4.3 Should section 21A be repealed?
No. Section 21A appropriately redresses the imbalance between insurers‟ and
insureds‟ levels of knowledge in relation to what constitutes a material fact (i.e.
one that will be relevant to an insurer in deciding whether or not to take on a
risk). Consumers in domestic lines of insurance:
“… frequently lack the knowledge and awareness to fully understand
those issues which may be of significance to the insurer. On the other
hand, the insurer has the experience and knowledge to identify the
information it reasonably requires…”3
As discussed at 4.1, such an imbalance is compounded in the case of less
sophisticated consumers, and those from non-English speaking backgrounds.
The Commission repeats its submissions in section 4.1 in relation to those
subsections of section 21A which invoke the “reasonable person” test. 4
4.4 Should section 21A be extended to include life insurance?
Yes, see the above answer to 4.3. Life insurance falls in to the same category
of product as those classes of insurance included in the present definition of
“eligible contracts of insurance”. It is often taken out by domestic consumers
3
Mann, P, Annotated Insurance Contracts Act, 3rd Ed, Law Book Company, 2001, at p76.
4
Namely, subsections 21A(4)(b)(ii), 21A(6)(b)(ii) and 21A(7)(b)(ii).
8
who have little understanding of how insurers assess risk in this complex field
of underwriting.
Further, where an insurer avoids a life insurance policy, or denies a claim by an
insured, the consequences for that insured are usually severe. Accordingly,
consumers should be protected from the significant risk of their claims being
denied or adversely impacted where they have acted in good faith.
4.5 Should insurers be required to inform insureds what information is
relevant to their decision to accept their risk or not?
Yes. The Commission supports this principle for the reasons set out above in
sections 4.1, 4.3 and 4.4. In our view, section 21A is reasonably effective in
achieving this purpose in relation to eligible contracts of insurance and its
operation should be extended to certain other types of insurance policies (see
4.2).
4.6 Should the duty of disclosure requirements be streamlined so that
the duty that applies to new contracts of insurance also applies at
the time of renewal or variation of contracts?
Section 21A should apply at renewal and variation of a contract of insurance, at
least in relation to “prescribed contracts” and other non-commercial contracts of
insurance (see 4.2).5 At such times the insured is currently subject to the
general duty of disclosure set out in section 21 of the IC Act. The difficulties
facing consumers in deciding what matters would be relevant to an insurer
discussed above are no less prevalent at these times than when a contract of
insurance is first proposed.
Further, in our view, consumers are more likely to turn their minds to the issue
of disclosure and material facts which have arisen prior to renewal if presented
with a further list of questions. This assists both insurers and insured by making
the disclosure of material facts at such times more likely.
4.7 Should the phrase ‘relevant to the decision of the insurer whether
to accept the risk’ found in paragraph 21(1)(a) and subsection 26(2)
of the IC Act be amended following the High Court of Australia’s
decision in Permanent Trustee Australia Ltd v FAI General
Insurance Company Ltd (in liq) If so, why and what is a suggested
replacement?
The Commission supports the views of the majority in Permanent Trustee. In
particular, we agree that to require insureds to disclose all matters which a
“reasonable person” would regard as being relevant to an insurer‟s decision to
accept a risk (including matters of purely commercial relevance):
a) places an unreasonable burden on insureds which “few insureds could ever
fully discharge”6;
5
Regulation 2B, Insurance Contracts Regulation 1985 (Cth)
6
Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) 197 ALR 364 at 372
(per McHugh, Kirby and Callinan JJ).
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b) would require the courts to consider a test of non-disclosure which is
incapable of effective objective assessment7; and
c) would allow the non-disclosure provisions of the IC Act “to be used as a
charter for avoidance of claims by insurers”8
Differing judicial opinions
The minority in Perpetual Trustee took the view that it would be difficult to
distinguish between matters bearing upon the risk and other matters which may
affect the insurer‟s decision to enter into the contract of insurance.9 In our view,
such a distinction would often be clear, and where such difficulties arose, they
would not be insurmountable.
For example, in Perpetual Trustee, the insured failed to disclose their intention
not to place insurance business with the insurer in future years in a proposal to
extend their existing cover on an interim basis. In our view, this is a matter
clearly unrelated to the assessment of the actual risks under the contract of
insurance.
Suggested amendment
In light of the different opinions expressed in the High Court, the Commission
agrees with the Insurance Council of Australia‟s suggestion that the relevant
provisions of the IC Act be amended to clarify the law in relation to this issue.10
In particular, the words “a matter relevant to the decision of the insurer whether
to accept the risk and, if so, on what terms” as they appear in Part IV of the IC
Act should be amended to reflect the interpretation of the majority in Perpetual
Trustee. One suggested amendment to the relevant provisions would be to
require disclosure of matters “relevant to the insurer‟s assessment of the risks
which would be covered by the proposed contract of insurance” (whilst applying
a modified subjective test of materiality – see 4.1).
4.8 Should warnings be given by the insurer to the insured advising
them that:
an insurer does not verify facts made by an insured until a claim is made;
and
the duty of disclosure still applies between the completion of a form seeking
insurance and the date the contract comes into effect?
In our experience, insureds often rely on a false assumption that an insurer will
check facts or investigate matters alluded to in a proposal form. For example,
proposed insureds are often required to sign consent forms allowing their
insurer to access their medical records. Often these individuals falsely assume
that the insurer will access those records in assessing their proposal for
insurance and, with this in mind (and in good faith), assume that they have
7
Ibid.
8
Ibid, at 373.
9
Ibid, per Gummow and Hayne JJ at 380.
10
Insurance Council of Australia, Submission to the Government Review of the Insurance Contracts Act
1984, at page 10.
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made adequate disclosure of all matters contained in those records. Typically,
an insurer will not access such records until a claim is made, at which time an
innocent non-disclosure may be discovered. Therefore, the risk of such
innocent non-disclosures would be reduced if insurers were required to issue a
warning that they will not verify facts contained in a proposal until a claim is
made.
Similarly, in the absence of an express warning, insureds will often assume that
they have complied with their duty of disclosure by disclosing all facts known to
them at the time of filling out a proposal form or answering an insurer‟s
questions during a preliminary telephone application interview. Relevant facts
may come to light after the insured completes the proposal process but before
the contract of insurance comes in to effect. Many insureds will inadvertently
fail to disclose such facts (believing they have no obligation to do so) and may
as a consequence be in breach of their duty of disclosure. 11 In our experience,
this is a common misconception.
Such scenarios are becoming increasingly likely due to the increased use of
initial telephone and internet applications where the contract of insurance is
later confirmed through the issuing of formal documentation. It is appropriate
for insureds to be warned about the extent of their duty in this regard in order to
avoid the potential consequences of an innocent non-disclosure in such
circumstances.
4.9 Should section 25 of the IC Act be expanded to include a non-
disclosure by a life insured?
No. In our view, placing such an onerous obligation on a person who is not
party to a contract would unfairly prejudice the insured.
4.10 Should the section 22 obligation that is imposed on insurers be
extended to renewals and variations of contracts?
Yes. In our experience, many insureds are unaware of their duty of disclosure
on renewal and assume that it is an automatic process, subject to payment of
the premium. An extension of the obligation contained in section 22 would
reduce the risk of claims being denied due to an innocent non-disclosure on the
part of insureds.
4.11 Should section 22 be amended so that it emphasises the
importance of giving honest answers and the effect of failing to do
so or of making misrepresentations?
Yes. Although the prescribed form of words to be used in providing the warning
set out in the Insurance Contracts Regulations 198512 refer to such matters,
insurers are not obliged to use this particular form of words. 13 Accordingly,
section 22 should be amended to ensure that the importance of giving honest
11
Prime Forme Cutting Pty Ltd v Baltica General Insurance Co Ltd (1991) 6 ANZ Ins Cas 61-028.
12
Schedule 1 and Schedule 2, Insurance Contracts Regulations 1985.
13
Ibid, reg 3.
11
answers and the consequences of not doing so are included in all warnings
given to insureds.
Section 22 should be also be amended to ensure that insureds are warned that
insurers will not verify facts until a claim is made (see 4.8).
4.12 Should the requirements for oral disclosures apply to all contacts
of insurance (not just certain ‘eligible contracts of insurance’)?
The Commission‟s clients are primarily consumers of “eligible contracts of
insurance”. Subject to our comments in 4.2 and 4.4 regarding the expansion of
this definition to encompass all non- commercial contracts of insurance, the
Commission makes no submission on this issue.
4.13 What is the best way of ensuring insureds understand the
importance of the duty of disclosure message that is given to them
by insurers?
In order to ensure that a proposed insured‟s attention is drawn to a statutory
warning about their duty of disclosure, the legislation should require that:
a) In the case of a written notice, the warning is clearly set out in legible font
(no smaller than size 12) on the front page of the proposal form (or on the
front page of a separate notice provided with the proposal form) and headed
(in bold size 14 or above font) “Important Notice - please read before
completion of the proposal”;
b) A similar written notice screen be displayed on Internet applications before
an electronic proposal form is able to be completed. The proposer should
indicate that he or she has read the relevant notice by clicking a
confirmation button;
c) In the case of an oral notice (such as that provided in relation to telephone
applications) the notice should be proceeded by words to the following
effect: “[Name of Insurer] requires that you listen to the following important
notice before it will consider you application for insurance”.
The above requirements would presumably avoid the potential for insurers to
fail to adequately draw the warning to the attention of insureds as considered in
Suncorp General Insurance Ltd v Cheihk (“Cheihk”).14
4.14 Should the regulations provide a form of words to be used to be
given orally to satisfy the duty of disclosure for contracts that are
not eligible contracts of insurance?
See answer to question 4.12.
14
(1999) 10 ANZ Ins Cas 61-442.
12
4.15 Should section 69 provide that an oral duty of disclosure given to
one insured or their agent be deemed to be given to all insureds
who are parties to the proposed contract of insurance?
The Commission would not object to such an amendment provided that a
separate written section 22 warning was provided to each party to the proposed
insurance contract as soon as reasonably practicable after the oral warning is
given.
4.16 Should subjection 21(1) be amended so that where a number of
contracts are sold at the same time (that is, there is a bundle of
contracts) the insurer is obliged to inform the insured only once of
its duty to disclose?
The Commission has no objection to such an amendment provided that any
warning given in relation to a bundle of insurance contracts clearly states that
the duty of disclosure applies in relation to each individual policy in the bundle.
4.17 Should the law be amended so that where an insured uses the
services of an intermediary any non-disclosure or
misrepresentation made by the intermediary to the insurer is said
to be that of the insured?
There is no urgent need for legislative amendment of the law in this regard.
Where an insured clearly engages the services of a broker or other
intermediary the law currently holds the insured responsible for a non-
disclosure or misrepresentation by that representative.
However, if such principles are given legislative force, care must be taken to
ensure that insureds are not held responsible for intermediaries who are, in
effect, agents of the insurer (whilst ostensibly acting on behalf of the insured).
4.18 Should any limits be placed on this ‘sheeting home’ of the non-
disclosure or misrepresentation to the insured?
An insured should not be held responsible for a misrepresentation made by an
intermediary engaged by the insurer, or one who is commercially linked to the
insurer in some other way.
4.19 Is this a significant concern requiring legislative action, or of
relevance only in unusual cases and therefore not a high priority?
This is a matter which requires greater consideration than the time frame for
the current review permits. It is not a matter that requires urgent legislative
reform – See 4.17 and 4.18.
5.1 Does the PDS regime effectively duplicate the requirements of the
standard cover provisions in terms of purpose and outcomes? If
so, how are the standard cover provisions duplicated and why is
that problematic?
No. The PDS regime does not duplicate the requirements of the standard cover
provisions of IC Act.
13
For the reasons set out below, we strongly support the continued existence of
the standard cover provisions as an important means of protecting the interests
of insureds. PDS has neither the same purpose nor outcomes that standard
cover provisions afford consumer today. The schemes differ in a number of key
respects:
Application of schemes
A key distinction between the two schemes is the more limited protection to
consumers under the PDS scheme. That is, under FSRA, PDS is limited to the
protection of „retail clients‟15. In contrast, standard cover provisions „cover the
field‟ in insurance law, applying to domestic insurance16 and potentially to all
other forms of insurance17.
Purpose of schemes
PDS is a scheme designed to regulate the conduct of insurers in the proper
disclosure of their insurance product prior to the product being sold. The focus
of the scheme, in respect of consumer‟s interests, is to ensure that they can
make a fully informed decision about the insurance product they are
purchasing. The scheme presumes consumers can make fully informed
decisions and can distinguish between different insurance products.
In contrast, the standard cover provisions in the IC Act are designed to ensure
a minimum standard over cover to those insureds whose reasonable
expectations on their insurance have not been met18. The focus is squarely on
providing a statutory minimum level of cover to all insureds in the field of
domestic insurance.
Remedies
The remedies available to a consumer under standard cover provisions are
superior to those under the PDS scheme.
As previously stated, the standard cover regime enshrines a statutory minimum
level of cover to all insureds in the field of domestic insurance whose
reasonable expectations on their insurance have not been met.
Under the standard cover regime, the onus on proving that the insured‟s
reasonable expectations have been met (by, for example, proving at least, the
provision of the Insurance Policy before the contract was entered into) is
squarely on the insurer: Lumley General Insurance Ltd v Delphin19.
15
As defined in section 761G of the Corporations Act 2001
16
That is, those types of prescribed insurance contracts as outlined in section 35 of Insurance Contracts
Act (Cth) 1984 and then defined under Part II of the Insurance Contract Regulations (Cth) 1985 –
including home building and contents insurance, motor vehicle insurance, personal accident and illness,
consumer credit and travel insurance.
17
Section 37 of Insurance Contracts Ac applies potentially to all types of insurance contract and is
designed to supplement section 35 prescribed contracts.
18
That is, by reason of a failure to clearly notify in writing of a derogation from the standard terms of
cover.
19
(1990) 6 ANZ Ins Cases 60-986 at 76,565
14
In contrast, the PDS regime does not provide a minimum standard of cover as
an available remedy. An insured may have an entitlement to pursue a civil
claim for loss or damage. However, pursuing such a claim may face certain
obstacles.
It is important to firstly remember that the obligation under PDS to provide
„information about any other significant characteristics or features of the
product or of the rights, terms conditions and obligations attaching to the
product‟ does not necessarily means that an insurer would be obliged to clearly
inform in writing of every derogation from the standard cover terms. Therefore,
it would remain open for an insurer to argue that there is no obligation to inform
an insured of a derogation that was, for example, a breach of section 35 but
which some other insurers also had in their contracts as a usual derogation.
Further, assuming there is a breach of the PDR regime, it is the insured and not
the insurer who bears the onus of proof. The insured must prove, on the
balance of probabilities, that loss or damage has arisen from the insurer‟s
breach of the regime. As insurance companies would well know in the context
of section 35 and section 22 of the IC Act, proving that an insured has been
duly informed of relevant matters can itself present as an evidential and even
legal challenge.
Finally, a failure to comply with the disclosure provisions in PDS may allow
ASIC to take action against the insurer. However, for insureds, there is no
guarantee of ASIC involvement in a breach of the PDS regime and, in any
event, their function is to identify and act upon system breaches of FSRA – not
represent individual insureds interests.
For these reasons, the standard cover provisions must be retained to properly
protect insureds‟ interests.
5.2 If there is problematic duplication between the PDS regime and the
standard cover regime (either in whole or in part), how best could
duplication be addressed (for example, through amendment of the
IC Act, the creation of new regulations under the FSRA or a
combination of both)?
For the reasons set out above, there is no duplication between the PDS regime
and the standard cover regime.
The assertion made by the insurance industry in their submissions that there is
somehow increased compliance costs in the co-existence of standard cover
provisions with the PDS regime has not been made out. The Review should not
accept these assertions as fact.
In our experience, and well before the decision of the Supreme Court in Hams,
insurance companies selling domestic insurance (and others) have in the main
been doing no more than providing consumers with a copy of an Insurance
Policy. Indeed, we submit that section 35(2) has created no additional cost to
insurers in complying with the provisions of the section.
It is worth dwelling, at this point, on the intentions expressed in the Australian
Law Report Commission – Report Number 20 – Insurance Contracts (the
15
“ALRC Report”) in this regard. It is clear that when proposing how an insurer
was to comply with its obligation to clearly inform an insured in writing of a
derogation of standard terms or of any unusual terms, it had in mind the
provision of a notice to insureds setting out the derogations or unusual terms.
The report relevantly stated that:
„A requirement of notification would have little, if any adverse effect on
the marketing of insurance or on product diversity.‟ 20
And, a little later on in the report
„…The length of the notification which would be required would bear no
resemblance to a full policy document.‟21
To our mind, this provides the clearest indication that the provision of a Policy
document would not satisfy a requirement that an insured be clearly informed in
writing of any derogation of terms or any unusual terms. In this sense, the 1985
amendment to section 35(2)22 and the recent decision in Hams case does not
reflect the intention of ALRC when drafting the report and is not a realistic
notice provision.
We submit that section 35(2) should be redrafted to repeal the 1985
amendment by deleting the material in that subsection in parenthesis 23. In that
sense, the „clearly inform in writing‟ requirements under section 35(2) would be
analogous to the „clearly inform in writing‟ requirements under section 22, and
as applied by the Court of Appeal in Cheihk.
Finally, in terms of compliance issues, the insurance industry would be well
aware that there is no novelty in an industry being regulated at any one time by
more than one piece of legislation. Insurance companies are well equipped to
understand and comply with their regulatory obligations.
5.3 Are there any reasons why the ‘notification of unusual terms’
should not occur in relation to all, or some, insurance policies or
clients?
No. We know of no submission to the Review where it was suggested that
there should be a narrowing of the requirements under section 37. The Issues
Paper does not cite any basis for narrowing the operation of section 37.
As previously stated in response to Q 5.3 and 5.4, section 37 supplements
section 35 and applies only in circumstances where section 35 does not
operate. We support, at a minimum, the continued protection afforded to
insureds under section 37, as a means of providing some remedy to insureds
who are not afforded the protection of section 35 standard cover.
We submit in response to Q 5.9 that the only basis upon which section 37 could
be repealed would be if section 35 were expanded to regulate for standard
cover for „non-prescribed‟ insurance contracts.
20
ALRC Report Number 20, Insurance Contracts, at p.45 at para 70.
21
ALRC Report Number 20, Insurance Contracts, at p.45 at para 72.
22
The amendment is found in Statute Law (Miscellaneous Provisions) Act (No 1) 1985, No 65 (Cth)
23
Namely, ‘whether by providing the insured with a document containing the provisions, or the relevant
provisions, of the proposed contract or otherwise…’
16
5.4 Under the IC Act, if an insurer cannot prove that disclosure of
unusual terms occurred before the contract was entered into, then
the insured will receive standard cover. Under the PDS regime the
onus is with the insured to pursue compensation for loss or
damage resultant from an insurer’s breach of the regime. Is the
additional consumer protection element provided by the standard
cover provisions still necessary?
We assume for the purposes of answering this question, that a reference to
„unusual terms‟ in the first part of this question is in fact a reference to section
35 (and not section 3724) of IC Act.
The Review has properly identified the heart of this issue when it states that the
standard cover provisions is an additional form of consumer protection. As set
out in response to Question 5.1, we come to the same conclusion by illustrating
that in application, purpose and remedy, the standard cover provisions are a
crucial form of consumer protection.
With respect, wesubmit that the onus should squarely be on those asserting the
removal of the standard cover provisions to show how there can be any
justification to support the removal of the additional consumer protection that
the standard cover provisions provide.
5.5 Alternatively, do the remedies available under the standard cover
provisions mitigate the need for remedies under the FSRA, in
relation to prescribed contracts? If so, should further remedies be
provided under the IC Act?
We do not support the removal of remedies available under FSRA.
However, we do support the idea of notice requirements as exists in the PDS
provisions of FSRA. For the reasons set out in answer to Q 5.2, we would
support the inclusion of a similar notice requirement with regard to any
derogation from the section 35 standard cover terms by an insurer.
As set out in answer to Q5.2, this can be achieved by simply redrafting section
35(2) to its state before the 1985 amendment by deleting the material in
parenthesis25. In that sense, the „clearly inform in writing‟ requirements under
section 35(2) would be analogous to the „clearly inform in writing‟ requirements
under section 22, and the requirements set by down by the Court of Appeal in
Cheihk.
The cost of simultaneously complying with Notice requirements under PDS and
section 35 would not be onerous on insurers because practically speaking,
there is no reason why the section 35 Notice could not be provided to an
insured at the same time as provision of the PDS.
24
On our understanding of these provisions, a breach of section 37 does not entitle an insured to revert to
the standard cover provisions under section 35. The remedy under section 37 is that an insurer cannot
rely on any such unusual term not clearly informed in writing to an insured.
25
Namely, ‘whether by providing the insured with a document containing the provisions, or the relevant
provisions, of the proposed contract or otherwise…’
17
A further recommendation is that, as with the PDS regime, ASIC should be
involved to investigate regular and systematic breaches by a particular insurer
of its obligations under section 35 and section 37 of the IC Act.
5.6 Are there any other issues that should be considered in relation to
the operation of the PDS regime and the standard cover
provisions?
We submit that as raised for consideration in the ALRC Report, there should be
a further consideration of standardised contracts in respect of section 35
insurance contracts.
The standardised contracts would apply to „prescribed contracts‟, as set out in
the Insurance Contracts Regulations (Cth) 1985 and contain at least standard
terms set out in the „prescribed events‟ and not excluded under the exclusions.
Standardised contracts would be greatly beneficial to consumers, particularly
those from a non-English speaking background or who have difficulty with
understanding the terminology.
In this respect, it is worth noting the following comments contained in the ALRC
Report in relation to incomprehensible contracts in the insurance industry
(which, in our experience, remains as much a problem today as it was then):
“The problem is at its worst for the substantial proportion of the insuring
public made up of persons for whom English is not their mother tongue.
Even if the language used were intelligible to the average insured, he
would often face an insurmountable obstacle in the form in which the
relevant information is set out. That information may be contained in a
combination of any two or more of the proposal form, the preamble, the
definition section, clauses dealing with exclusions or conditions and the
schedule of the policy. Extraordinary ingenuity and dedication are
required if the insured is to succeed in putting together the pieces of the
puzzle... The great majority of insureds have little understanding of the
precise nature of their cover.”26
Reference was also made by the Commission to Guardian Assurance Co Ltd v
Underwood Constructions Pty Ltd (1974) 48 ALJR 307 at 308 where Mason J.
described a policy as a "jumble of ill-assorted documents expressed in that
distinctive style which insurance companies have made their own".
More recently, the Legal Aid Commission raised these concerns with the IEC.
Fraud Referee, Michael Arnold picked up these points and relevantly stated in
the IEC Annual Report for 2003:
“The Legal Aid Commission of New South Wales in a paper spoke of the
need for special requirements for consumers of non- English speaking
background, for Aborigines and Torres Strait Islanders. It pointed out that it
acted for non-English speaking clients and found that in relation to
complaints about insurance contracts there was:
a lack of understanding of the detail of the transaction;
26
ALRC 20 at p. 22
18
a tendency to assume the product or service operates in a way
similar to their home country, when this may not be the case;
a reliance on third parties (such as their school-age children) to
read documents and interpret and explain them.
Particular problems can arise, such as:
1. A failure to answer questions properly at the time the policy is
taken out.
2. A tendency of some investigators to assume people of particular
ethnic origins are more likely to make fraudulent claims.
3. Difficulties in putting forward arguments or facts as to why a claim
should be paid.
The Commission also acted in civil matters for Aboriginal people who had
been, in its experience, victims of particularly unfair conduct.
These transactions were also characterised by a lack of understanding of
the detail of the transaction but also a complete reliance on the
representations made to them by the agent. The Commission believed it
was rare that their clients would have read the documentation.
There have been similar experiences under the Scheme. I agree with the
point made by the Commission that it is important for these groups that the
insurer’s duty of utmost good faith and the obligation to “clearly inform” of
the duty of disclosure must be given a greater degree of care than for
middle Australia. The decision in Suncorp General v Cheihk means it is
open for these insured to argue that this duty requires more than the
provision of information.
Again picking up on the Commission’s comments the duty and obligation on
the insurer will depend on the circumstances and “will always be a question
of fact and degree”. This means that the characteristics of the particular
insured will be relevant in deciding whether the requirements of the Act
have been met. It should be noted that Justice Stein in Suncorp General v
Cheihk accepted that “inform” means to “make known” which is clearly a
subjective test”.
The anti-competitive concerns should not be in issue as insurers would be free
to offer its own non-standard product with notice as to which provisions were a
derogation from standard cover.
5.7 Should the standard cover regulations be retained? If so, is it
feasible to modernize the regulations? If not, how could the policy
intention of the standard cover regulations be otherwise achieved?
Yes. The standard cover regulations should be retained. The regulations
enshrine the proper working of standard cover regime by guaranteeing a
minimum level of cover in respect of the prescribed events.
In response to comments that certain prescribed events are no longer relevant
to insurance in Australia today, we submit that any relevantly identified
19
regulations could, with proper consumer consultation, be relevantly amended to
provide for prescribed events that reflect insurance in Australia today.
5.8 Does the interpretation in Hams case give effect to the policy
intention of section 35 of the IC Act/ If not, what would amount to
‘clearly informing’ the insured as to how an insurance contract
differs from the standard contract?
No. For the reasons set out in response to Q5.2, Hams case does not give
effect to the intention of section 35 of the IC Act as envisaged by ALRC. But, as
set out in response to Q 5.2, we submit that Hams has correctly interpreted bad
law.
That is, as we set out in response to Q 5.2, we submit that section 35(2) should
be redrafted to repeal the 1985 amendment as it relates to informing an insured
in writing, by deleting the material in parenthesis27. In that sense, the „clearly
inform in writing‟ requirements under section 35(2) would be analogous to the
„clearly inform in writing‟ requirements under section 22, and as applied by the
Court of Appeal in Suncorp General Insurance Ltd v Cheihk28.
A brief review of the decisions of the IEC where section 35 has been raised
illustrates quite clearly the fundamental inadequacy of the „clearly informing‟
provisions. Time and again, insureds approach the IEC with a claim where an
insurer is relying on a derogation that an insured says they did not know about.
An insurer then brings to the Panel evidence of its standard procedure as to the
provision of insurance policies at the time of issuing of cover and is able to rely
on its standard procedure as to the provision of its policy documents as
satisfying the „clearly inform‟ provisions. 29 In most cases, the insured also says
that had they known of the derogation they would not have continued with the
relevant policy.
These types of cases illustrate the fundamental breakdown in communication
that is occurring between insurer and an insured as to the terms of their
policies. It also illustrates that insurers are ultimately benefiting from this
fundamental breakdown in communication, as truly informed insureds would
take their business elsewhere. A notice provision provided to an insured setting
out the derogation from standard cover would go a long way to alleviating this
problem.
Indeed ultimately, unless section 35(2) is amended to give effect to ALRC‟s
intentions as to proper compliance with the „clearly informed‟ provision (i.e.
provision of a Notice document), the cases and our experience illustrate that
section 35 is a toothless tiger and not the adequate consumer remedy it was
intended to be.
27
Namely, ‘whether by providing the insured with a document containing the provisions, or the relevant
provisions, of the proposed contract or otherwise…’
28
[1999] NSWCA238
29
See, for example, IEC Determination Referral Number 602 08 15934, where an insurer successfully
argued it has clearly informed of a derogation from standard terms by bringing evidence of its standard
procedure in respect of provision of Motor Vehicle Insurance policies; IEC Determination Referral
Number 210 05 12728, where an insurer successfully argued it had complied with section 35(2) even
though the Panel conceded ambiguity in the drafting of the derogation throughout the Policy documents.
20
For the same reasons, section 37 should be similarly amended to section 35(2)
to give effect to the words „clearly inform in writing.
The formatting of a Notice under section 35(2) and section 37 should be in
similar terms to a section 22 Notice, as outlined in our response to 4.13.
5.9 Could the requirements under section 35 of the IC Act be better
dealt with by expanding the operation of section 37? If so, how
could section 37 be expanded to maintain or improve the current
standard cover regime?
No. Section 37 should not be expanded to relate to „prescribed contracts‟. For
the reasons set out in response to Q 5.1, we submit that the additional
protection afforded to consumers under section 35 of the IC Act must be
retained (subject to the amendment relating to „clearly inform in writing‟) under
that section as it currently exists. This is the better remedy for many insureds.
By seeking to expand the operation of section 37, there would necessarily be a
whittling away of the protection afforded to consumers in the standard cover
terms of section 35. Section 37 does not operate to provide a form of standard
cover.
At the same time, section 37 as it is currently drafted remains a useful remedy
to insureds who can seek the removal of unusual terms in contracts that they
have not been clearly informed of in writing.
Indeed, the only basis upon which section 37 should be repealed would be in
circumstances where section 35 were expanded to regulate for standard cover
for section 37 non-prescribed‟ insurance contracts.
6.1 Is the restriction in section 15 of the IC Act on remedies available
to the insured for unfair contractual terms still appropriate? If so,
are there any remedies under other laws that should be similarly
restricted in the context of insurance contracts?
No. Section 15 should be repealed. It unfairly and unnecessarily restricts
insureds from accessing State and Federal consumer protection legislation.
This legislation exists because it is recognised that standard form contracts can
be harsh, oppressive, unconscionable, unjust, unfair or inequitable. Insurers
should not be granted a blanket exemption from established and prospective
consumer protection legislation.
Section 15 is a product of its time. It was an over reaction to the then novel idea
of consumer protection legislation. An analysis of the decided cases clearly
shows that the courts application of consumer protection legislation has not led
to uncertainty for other industries.
At the time that Section 15 was drafted, it was believed that Section 14 would
ameliorate the need for consumer protection legislation. However from our
experience it is clear that Section 14 has inherent flaws, which prevent it being
a complete replacement for the excluded consumer protection legislation.
21
The wording of Section 15 is too broad and is out of step with current regulatory
measures. It operates in a way that would not have been contemplated by the
ALRC. In its current form section 15 will preclude regulation of insurance
contracts by the proposed uniform „unfair terms in contracts‟ legislation.
Section 15 precludes insurance from review by the unconscionable conduct
provisions in the ASIC Act.
Insurance is a mature and profitable industry. Section 15 is not reasonably
necessary to protect the legitimate business interests of insurers.
The issues paper sets out the justification (in 1984) for section 15. After 20
years it can be clearly seen that Section 14 has failed to fulfil its stated role of
being an „inducement to insurers and their advisors to be careful in drafting
their policies and to act fairly in relying on their strict terms’.
Case Study
At the time of writing this Response, an insurer (being a subsidiary of a
major bank) is offering a policy to cover the repayments or outstanding
balance on the banks credit card in the following circumstances: Critical
illness, Disability, Death and Unemployment.
The following are some of the policy terms.
General Conditions
Age Limitation
… No Unemployment Benefit will be payable whilst you are aged 21 years or
under at the time of the Unemployment.
Claims Procedures
No benefits shall be payable under this Certificate unless:
(a) Written notice is given to us within 30 days after any of the Events
giving rise to a Benefit:
At any time after a claim has been submitted or a potential claim advised to us
under this Certificate, we may in our absolute discretion indefinitely suspend
your and any additional account holder’s right to use your Credit facility.
Exclusions
No Benefits will be payable under this Certificate where the Event giving rise to
the Benefit occurs as a result of:
(j) in respect of Unemployment
(i) any injury or illness
(ii) a strike or labour disturbance in which you or your employer is involved
It is clear that Section 14 has not acted as the right type of inducement to the
drafters of this insurance policy.
22
Section 14 & 15 do not combine well to address substantive and
procedural unfairness.
Section 14 relies too heavily on individual litigants to regulate substantive
unfairness. There is a real need for legislation such as the proposed unfair
terms in contracts legislation to address substantive unfairness in a systemic
way.30 In a submission made to the discussion paper on unfair contract terms
ASIC made the comment that:- Generally speaking, and subject to the
comments that follow, the legislation ASIC administers in financial services
does not seek to regulate the substantive fairness of contract terms.
Section 14 unnecessarily restricts the remedy available to consumers to
circumstances where an insurer in bad faith relies on a particular contract term.
There are many instances of procedural unfairness that are not remedied by
Section 14. One example is point of sale or claims handling disputes. To be an
effective remedy Section 14 needs to cover other circumstances where an
insurer could breach their duty of utmost good faith for which the consumer has
no remedy (for example, point-of-sale or claims-handling disputes).
Section 14 needs to cover all breaches of good faith by an insurer. If a tort of
bad faith is impractical then a prescriptive list of obligations owed by an insurer
backed up by civil penalties is required.
6.2 Should the prescribed interest rate be increased so as to provide
an incentive to insurers to finalise claims?
Insurers need to clearly notify consumers of their entitlement to claim interest.
An increase to the prescribed rate together with notification provisions would
act as an incentive for insurers to finalise claims in a timely manner.
6.3 Should it be made clear in the IC Act whether compound interests
is available in addition to the prescribed interest under section 57?
If so, how?
Yes, provision should be made in the Act. In addition consumers should be
clearly notified in writing of this.
6.4 Are contractual remedies sufficient for insureds, or should there
be an opportunity to obtain damages for consequential loss,
punitive or exemplary damages in tort for unreasonable delay in
payment of claims?
There should be an opportunity for an insured to be awarded damages that
match the reprehensible conduct of the insurer. It is important to remember
30
The Discussion Paper to that review at Appendix A (page 93) lists European regulatory statistics
showing complaints about unfair terms by industry type. Significantly Insurance is listed in fourth place
behind Real Estate, Financial Services and Motor Vehicles. The 2002 Annual Report of the IEC (page
35) and the 2003 Annual Report (pages 28-29 & 32) show that unfair terms in insurance contracts
continue to be prevalent. Of particular concern are terms that provide illusory cover. It would be highly
embarrassing if, after an extensive review of the Act it was found that insurers were selling policies in
Australia containing terms that had been declared to be unfair in the United Kingdom.
23
that if such damages would only be awarded if they were deserved, and would
operate as an appropriate incentive to insurers to avoid high-handed conduct.
7.1 Should there be a statutory definition of ‘fraud’?
7.2 Should an insurer be entitled to avoid a policy for immaterial non-
disclosure or misrepresentation?
7.3 Should section 29 of the IC Act be repealed? Alternatively, should
it be partially repealed so its application is limited to whole of life
and endowment policies?
7.4 If section 29 should be repealed or partially repealed, should life
insurers be able to use the remedies that are available under
section 28 or is there another approach that would be preferable?
7.6 Should the three year time periods mentioned in section 29 be
repealed?
No, to all of these questions.
7.12 Section 60 of the IC Act provides the circumstances in which an
insurer can cancel a contract of general insurance. Should there be
a similar provision for when a contract of life insurance should be
cancelled?
It is not merely a matter of logic that life insurers should have the benefit of
section 60. Rather, the Commission submits that the Review should proceed
very carefully in this matter owing to the special nature of life insurance; namely
as, in many cases, not merely a provision against death, but also a substantial
investment for the insured‟s old age, for which the insured may have put aside
savings for many years. (See the discussion of discontinuance and forfeiture of
life insurance from paragraphs 255 to 263 of the 1982 Australian Law Reform
Commission‟s Report No.20, on Insurance Contracts.) In other words, the
cancellation of a life insurance policy may prove far more financially disastrous
for an insured person of limited income than, for instance, the cancellation of a
motor vehicle policy.
The Commission suggests that the Review reflect on the possible reasons why
life insurers were given the power to refuse to pay a fraudulent claim by section
56, but were not given the power to cancel a policy for such a claim by section
60.
It is disingenuous of insurers to suggest that provisions of this sort should lie in
the Insurance Contracts Act because they are too afraid to put them in their life
insurance policies for fear of deterring potential insurance proposals. So far as
possible, insured persons should always be clear on the circumstances in
which their policies can be cancelled.
In particular, the provisions of paragraph 60(1)(d), at least so far as they
concern the payment of premiums, must not be permitted to override the
24
superior provisions of section 210 of the Life Insurance Act 1995, which provide
substantial benefit to ordinary insured persons.
7.13 Should insureds have a statutory right to cancel policies on notice
and receive a pro-rata refund?
The answer to this question depends very much on what is meant by „pro-rata
refund‟. See the discussion of surrender values at paragraphs 256 – 258 of
1982 Australian Law Reform Commission‟s Report No.20, on Insurance
Contracts.
In principle, the answer might be yes, though in practice the right might prove
illusory if any refund is eroded by recovery of the insurer‟s costs.
7.14 Is there a need for clarification under section 58 of the IC Act with
respect to what is a renewable policy?
The Commission is not aware of any need for clarification. However, if the
Review concludes that there is a substantial distinction between „insurance
cover‟ and an „insurance policy‟ or a „contract of insurance‟, clarification may be
warranted.
In principle, the Commission supports the mandatory issue of timely warnings
by insurers to insured persons that their cover or policies are due to expire, so
that appropriate cover can always be maintained as desired.
7.15 Should section 58 be amended to harmonise the notice of
cancellation of statutory policy with section 60, that is 14 days?
The Commission understands that this question must actually refer to the
cancellation procedure set out in section 59 of the IC Act.
So far as possible, insured persons should be able to ensure continuity of
insurance cover. Despite all the facilities that are available today to make it
quicker and easier for persons to conduct business transactions (such as the
Internet) the Commission suggests that modern working conditions can make it
very difficult for employed insured persons to arrange appropriate insurance
cover quickly. It is not appropriate that any insurance policy should be
cancellable on as little as three days‟ notice. Even 14 days is barely sufficient.
However, notice of cancellation under sections 58 & 60 should allow at least
that period.
7.16 Should the laws relevant to cancellation of policy be brought
together under one statute? Is the IC Act the appropriate statute?
This is a difficult drafting issue. In principle, so far as possible, all laws relating
to life insurance should be contained within the Life Insurance Act 1995, as a
matter of completeness, even if they merely re-iterate provisions in the IC Act.
However, the Life Insurance Act mostly contains provisions that concern the
industry of life insurance, and it is easy to overlook provisions that actually
concern life insurance policies too. It would probably be preferable if all the
latter kind of provisions were collected as early as possible in the Life
Insurance Act.
25
As a matter of fact, the distribution of provisions is likely to matter more to
lawyers than to insured persons.
7.17 Is there a need to clarify section 59? If so, how?
If persons whose business it is to manage the business of insurance find it
difficult to understand section 59, the section should be clarified. It is a matter
for them to suggest appropriate drafts.
7.18 Should the period of notice for the cancellation of policies be
reviewed? What is the appropriate period of notice where the
reason for cancellation is a fraudulent claim?
See the Commission‟s comments at Issue 7.15 above.
The Commission does not agree that the period of notice for cancellation
should be shorter than 14 days in the case of a fraudulent claim. There will
frequently be a dispute between the insurer and the insured whether or not the
claim is indeed fraudulent; and the issue of notice should not be resolved in
favour of the prejudices of the insurer. Some insurers have come under notice
for a practice of rejecting claims on the ground of fraud when the claimant
insured belongs to a particular ethnic group. Insured persons should not be so
easily prejudiced by mistaken allegations of fraud, which is a very serious
matter.
Insurers are not prejudiced by any small delay in the cancellation of a policy on
the ground of fraud, because an insured person should never be able to
successfully obtain payment on a fraudulent claim.
7.19 Should interim contracts of life insurance be able to be cancelled
without notice, in the same way that general insurance contracts
are?
The Commission wonders whether sufficient consideration has been given to
all the circumstances where an insured person may seek to obtain life
insurance, in the extended meaning given within the Life Insurance Act 1995.
Are there some circumstances where it could prove disastrous to an insured
person to have an interim policy of life insurance cancelled without notice,
where such a policy had to be arranged urgently for some reason?
7.20 Should the IC Act allow an insurer, in relation to a contract placed
by an intermediary, the option of issuing a cancellation notice or
avoiding the contract ab initio (on providing proper notice) when
the premium remains unpaid for a specified period after the
contract’s commencement date?
Insufficient information appears in the Issues Paper for the Commission to
comment adequately on this issue. Why do insurers wish to rescind the
contract ab initio where an intermediary has obtained the contract? Does it
merely avoid claims for commission?
7.21 What should be the minimum notification requirements for an
insurer of its intention to cancel?
See the Commission‟s comments at Issue 7.15 above.
26
The Commission is inclined to believe that 21 days‟ written notice is less likely
to prejudice the interests of insured persons than 14 days‟ notice.
Insurers should always be required to state the ground of cancellation, and the
substance of the ground, in the cancellation notice. The cancellation of a policy
is a very serious matter for a person‟s insurance reputation, and should not be
permitted to be done lightly. If the ground of cancellation is made clear, the
insured has an opportunity of properly disputing the ground and having it
resolved by internal review before too much damage is done to his or her
reputation.
Legal Aid Commission
21 April 2004