The Insurance Contracts Amendment Bill 2013 – Third Parties (Part 2)

This blog continues my occasional series of blogs on the impact of the Insurance Contracts Amendment Bill 2013 on the Insurance Contracts Act. It is the second blog in the special series which looks at proposed amendments to those provisions in the Act which concern the position of third parties.

This particular blog looks at proposed changes to the defences available to insurers to meet claims by third party beneficiaries.

Section 48 is a well known section of the Act and largely concerns the relationship between insurers and named persons who are entitled to claim under a contract of general insurance. In broad terms, Section 48 permits such named persons to make a claim against the insurer even if that person is not a party to the contract.

So how will things be different ?

Firstly there will be some changes to the language of the Section. The expression “named persons with an entitlement to claim“ will be replaced with the expression “third party beneficiaries“. So the focus of the section will be much sharper.

The more fundamental change will be to clarify the operation of Section 48(3).

Section 48(3) currently provides that the insurer has the same defences to an action under this section (by a named party) as the insurer would have in an action by the insured. But does that mean that an insurer can use the conduct of the insured to defeat a claim by an innocent third party beneficiary or is that insurer limited to the conduct of the third party ? 

Section 48(3) will be amended to conclude with the words “including, but not limited to, defences relating to the conduct of the insured (whether the conduct occurred before or after the contract was entered into)”. In amending Section 48(3) this way, an insurer will be able to rely upon the conduct of an insured to defeat a claim by an innocent third party beneficiary.

Section 48AA applies in the context where a Retirement Savings Account provider takes out a contract of life insurance for the benefit of Retirement Savings Account holders. The Bill will make similar amendments in practical terms to Section 48AA as it proposes to make to Section 48 including the proposed amendment to Section 48(3).

These changes will enhance the position of an insurer who is facing a claim by a third party beneficiary whether that claim is founded on Section 48 or Section 48AA.

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The Insurance Contracts Amendment Bill 2013 – Third Parties (Part 1)

This blog continues my series of blogs on the impact of the Insurance Contracts Amendment Bill 2013 on the Insurance Contracts Act.

It is the first in a special series of blogs which looks at proposed amendments to the entitlements of third party beneficiaries – those who get a benefit under a contract of insurance but are not parties to that contract.

Section 41 of the Act is not a section which gets a lot of attention.

Firstly it only concerns contracts of liability insurance. They are contracts of general insurance that provide cover in respect of a liability for loss or damage caused to a person who is not the insured.

Secondly its application arises when an insured is required to obtain its insurer’s consent before making any admissions or compromising any claim made against it. In those circumstances the insured can request the insurer to admit that its contract of liability insurance responds to the claim and confirm that it will assume responsibility for the management of the defence to that claim. If the insurer does not respond within a reasonable time to the insured’s request, it cannot complain if the insured has made any admissions or compromised the claim without its consent.

The Bill proposes to repeal Section 41 in its entirety and replace it with a new Section 41 whose language is almost exactly the same. I say “almost” because there one difference. And it is important. 

Upon its commencement, the new Section 41 will extend beyond the insured to third party beneficiaries. So in exactly the same context, third party beneficiaries will be able to make the same request of the contract’s insurer that the insured under that contract can make, and enjoy the same protection as the insured under the contract enjoys if the insurer does not respond within a reasonable time .  

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The Insurance Contracts Amendment Bill 2013 – Cancellation of Contracts of Life Insurance

This blog continues my series of occasional blogs on the impact of the Insurance Contracts Amendment Bill 2013 on the provisions  of the Insurance Contracts Act.

Today’s blog looks at the proposed amendments to Section 59 of the Act.

Section 59 outlines the procedure which an insurer must follow to cancel a contract of insurance. In broad terms it provides that where an insurer elects to cancel a contract of insurance, the insurer must notify the insured in writing of the proposed cancellation. 

The Bill proposes to add Section 59A.  

The proposed Section 59A concerns the cancellation of contracts of life insurance. It provides that if the insured has made a fraudulent claim under a contract of life insurance or any other contract of insurance held with the same insurer over the same period as the contract of life insurance, the insurer may cancel the contract of life insurance.

In any proceedings in relation to the claim, the Court may disregard the cancellation, order the insurer to pay such amount as the Court considers just and equitable in the circumstances and require the insurer to reinstate the contract, if it would be harsh and unjust for the Court not to do that.

If any proceedings in relation to the cancellation, the Court may require the insurer to reinstate the contract, if it would be harsh and unjust for the Court not to do that.

Whatever it decides to do, the Court must have regard to, amongst other things,  the need to deter fraud.

The Bill also proposes to amend Section 63 of the Act to render any attempt to cancel a contract of insurance otherwise than in accordance with Section 59 (as amended ) or in the case of contracts of life insurance, Section 210 of the Life Insurance Act 2005, ineffective.

Upon the commencement of the Insurance Contracts Amendment Bill, an insurer’s decision to cancel a contract of life insurance in the face of fraud will come under greater scrutiny to the point that a Court may simply disregard it and require the insurer to meet the claim.

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Newsflash – Insurance Contracts Act

There are two extremely important developments that I would like to bring to your attention.

The first is that last Monday the Western Australia Court of Appeal handed down its judgment in Maxwell v Highway Hauliers. You may recall that this case concerned two points:-

• did Section 54 of the Insurance Contracts Act apply where the drivers of trucks, involved in separate accidents on trips between Victoria and Western Australia, did not hold the requisite qualifications contrary to the requirements of the relevant contracts of insurance: and
• in denying the insured indemnity wrongfully, were the insurers liable to pay the insured consequential damages.

The trial judge answered both questions yes. The Court of Appeal has dismissed the appeal.

I will look at this judgment more fully in a subsequent blog. In the meantime, if you would like a copy of this judgment, please let me know.

The second is that last Friday the  the Assistant Treasurer, Mr David Bradbury, released for public comment draft legislation which will amend the Insurance Contracts Act 1984 to give consumers protection against unfair contract terms in general insurance contracts.

According to the Explanatory Memorandum, the Insurance Contracts Amendment (Unfair Terms) Bill 2013 will amend the Insurance Contracts Act to introduce unfair contract terms provisions for standard form consumer contracts of general insurance.

This development too will be the subject of a more considered blog. In the meantime, if you would like a copy of the draft legislation and Explanatory Memorandum, please let me know.

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The Insurance Contracts Amendment Bill 2013 – Life Insurance and Age Misrepresentation

This blog continues my occasional series on the impact of the Insurance Contracts Amendment Bill 2013 on the Insurance Contracts Act.

Section 30 of the Act concerns the remedies available to a life insurer where a life insured misrepresents his or her age.  (Just to pause for a moment – it is important to remember that Section 29 addresses the remedies for life insurers where there has been a non-disclosure or misrepresentation. But it expressly excludes from its reach misrepresentations about age.  That is Section 30′s domain.)

Underpinning the operation of Section 30 is what the Section refers to as the ”standard formula”. Essentially the “standard formula” is the sum insured under the contract of life insurance multiplied by the premium paid all of which is divided by the premium that would have been paid had the correct age been disclosed.

If the age of a life insured is misrepresented, the formula is applied.

Where the sum insured is more than the number which the formula’s application produces, the life insurer may vary the sum insured under the contract of life insurance to the amount produced by the application of the formula. Where the sum insured is less than the number which the formula produces, the life insurer may either reduce the premium or increase the sum insured. 

The variations take effect from the date the contract of life insurance was entered into.

Upon the commencement of the Bill, Section 30 will be amended to provide life insurers with a third alternative option.  Section 30(3A) will permit life insurers faced with a misrepresentation as to age to change the expiry date of the policy to the date which would have been applied had the correct birth date been given. That variation will also be effective from the inception of the life insurance policy.

The key point – if a life insured misrepresents his or her age, the life insurer will be able under Section 30(3A) of the Act to amend the date upon which the contract of life insurance expires effective from the date of the contract’s inception.

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