NIBA Member Update: Unfair Contract Terms

In response to Recommendation 4.7 of the Financial Services Royal Commission, the Government has extended the unfair contract term regime in the ASIC Act to insurance contracts that are covered by the Insurance Contracts Act 1984 (Cth). The new Unfair Contract Terms regime will apply to relevant insurance contracts which are also standard form consumer or small business contracts that are entered into, renewed or varied on or after 5 April 2021.

This means that insurers will be reviewing and updating wordings prior to the start date where required in order to meet the new requirements. For insurance brokers, clients will have new rights to challenge terms under such contracts as being unfair.

To ensure members are across the changes NIBA’s legal Adviser, Mark Radford, has prepared an update on the upcoming Unfair Contract Terms regime.

What is a standard form contract?

There is no statutory definition for a standard form contract. However, certain factors are taken into consideration when determining whether a contract is a standard form contract.

Those factors may include whether:

• one of the parties had all, or most of, the bargaining power in the transaction;
• one party prepared the contract before any discussion between the parties about the transaction occurred;
• another party had the opportunity to negotiate the terms of the contract; and
• the terms of the contract take into account the circumstances of the transaction or other party.

What is a small business contract?

A contract is a small business contract if:

• at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons (a casual employee is not to be counted unless he or she is employed by the business on a regular and systematic basis); and
• either of the following applies:
  – the upfront price payable (premium) under the contract does not exceed $300,000;
  – the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.