Insurance Contracts Amendment Bill 2010
The amendments to the Insurance Contracts Act 1984 (IC Act) have now been released and are expected to be passed this year, possibly as early as June or July.
The changes basically represent a fine-tuning of the Act and brokers need to be aware of the amendments so they can continue to advise their clients properly.
It is important to note that the amendments will apply at different dates and some, if passed, won’t take effect for at least 18 months, so brokers should familiarise themselves with the various timeframes.
Some of the original proposals for change have been dropped
Some of the previously proposed amendments in the 2007 exposure draft will not be implemented, the most important being the proposed changes to section 54 and section 40 that would have affected claims made and claims made and notified policies.
What is changing
Workers Compensation
Given the problems associated with bundled workers’ compensation policies, the entire policy is to be exempted from the IC Act.
Duty of utmost good faith
The duty of utmost good faith has been extended to apply to third-party beneficiaries. A breach of the duty by an insurer will also now result in a breach of the Act and will allow ASIC to bring representative and other actions, including under the Corporations Act.
Electronic communication changes
It is proposed that the regulations will be amended to remove the IC Act exclusion from the Electronics Transactions Act, and allow for written notices to be sent electronically under the IC Act.
The insured's duty of disclosure
Under section 21(1), an insured has a duty to disclose every matter that is known to the insured, which the insured knows it is relevant; or which a reasonable person in the circumstances could be expected to know to be relevant. The “reasonable person” test has now been expanded to include a new non-exclusive factor the court must consider – the nature and extent of the insurance cover to be provided under the relevant policy.
Eligible contracts
Currently different duty of disclosure obligations apply in relation to “eligible contracts”. An eligible contract is defined in regulation 2B.
Section 21A only applies when the relevant eligible contract is first entered into. It is to be amended so that the insurer is only permitted to ask specific questions for new business eligible contracts and cannot ask an exceptional circumstances question. A new section 21B will apply to the renewal of eligible contracts which imposes significant new obligations on insurers that currently do not exist.
Third-party beneficiaries
A new definition of “third party beneficiary” has been inserted into the Act because the term is now used in a number of provisions other than section 48. New rights will be provided to third-party beneficiaries that did not previously exist. The rights of insurers in relation to claims by such persons have also been better clarified.
Third-party rights
Gaining access to the insurance of insureds in circumstances where they die or cannot be found has been extended to third-party beneficiaries.
Subrogation rights
Subrogation recovery rights have been significantly amended and extended to apply to third-party beneficiaries.
Summary
Most of the changes to the Act are non-contentious (especially with the removal of the proposed changes in relation to section 54 for claims made and claims made and notified policies) but it is questionable whether the proposed duty of disclosure changes are appropriate.
Most of the changes require insurers to consider whether existing procedures and documentation are affected and if so, to make amendments to take them into account. Insurance brokers acting for insureds will need to ensure they understand the new rights and obligations and the impact on insureds and third party beneficiaries so they can properly advise their clients.
For more detailed information about the changes to the Insurance Contracts Act, click here.
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