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.