The Lesser Known Insurance Contracts Act – Section 20

In my series of blogs on the lesser known provisions of the Insurance Contracts Act, I have been looking at those provisions which have redefined the notion of an insurable interest.

The short point is that the Act considers there to be a sufficient interest to claim indemnity under a contract of insurance if there is a link between the loss suffered and the damage to the subject matter of that contract. 

Section 20 takes this process of redefinition one step further. It provides that those who benefit under the contract do not necessarily have to be named in the contract. Obviously the Insured will be named in the contract. More often than not the contract will also name other parties who are entitled to benefit under it.

But the point which Section 20 makes is that if you have suffered loss because the subject matter of the contract has been damaged, the fact that you have not been named is not fatal to your claim for indemnity.

In this way Section 20 compliments the work which Sections 16 and 17 do in redefining the concept of an insurable interest under Australian law. The key is the link between the loss and the damaged subject matter of the contract.

In many ways the Act is a triumph of substance over form. Section 20 illustrates that triumph.

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The Insurance Contracts Amendment Bill 2013 – Electronic Communication

This blog is the third in my occasional series of blogs on the impact of the Insurance Contracts Amendment Bill 2013 on the Insurance Contracts Act.

In this blog, I will be looking at how the Bill brings the day to day operation of the Act into the 21st Century by permitting electronic communication.

But first a couple of general related communication issues.

Sections 70 and 71 of the Act in broad terms concern communicating with life insured and agents in certain circumstances. They make frequent reference to expressions such as  ‘notices‘,  ’statements‘, ‘any other document’ and ‘any information’. The Bill replaces those references with the expression ‘notice or other document or information’.

Now to the more important stuff.

Section 72 of the Act concerns the legibility of writing. Any notice, statement or information in writing must comply with any requirement as to its legibility. Section 77 concerns the process of giving notice.  Where a provision of the Act requires that notice be given to an individual, it is sufficient if the notice is given to that individual personally or sent to that individual’s last known address. Where a provision of the Act requires that notice be given to a corporation, it is sufficient if the notice is given in any way which the Corporations Law permits. The Section makes specific mention of notices of cancellation served by post. In those circumstances, the notice will be deemed to have been given at the time a notice served this way would normally have been delivered. 

The Bill proposes that both Sections 72 and 77 be repealed. It will incorprate legibility and effective service in a new Section 72 on terms similar to the current Sections 72 and 77. But there is a twist. There is a Note to the new Section which is expressed in the following terms:-

“A notice or other document may also be given to a person by electronic communication in accordance with the Electronic Transactions Act 1999 and any regulations made under that Act.”

There are a couple of points to be made here.

Firstly the concept of an electronic communication is defined under the Electronic Transactions Act 1999 in very broad terms. If nothing else it includes emails.

Secondly this Note refers to ‘person‘ which the Acts Interpretation Act tells us also means a ‘body corporate’. So the Note extends beyond individuals.

The important thing to take on board is that upon the commencement of the Insurance Contracts Amendment Bill 2013, the Insurance Contracts Act will accommodate electronic communication.

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The Insurance Contracts Amendment Bill 2013 – Its Impact on the duty of utmost good faith under the Insurance Contracts Act

In light of the path which the Insurance Contracts Amendment Bill 2013 is skipping down through the Houses of Parliament in Canberra, I thought that it might be helpful to highlight through an occasional series of blogs some of the significant changes which this Bill will bring to the Insurance Contracts Act.

So I might as well start at the beginning – the duty of utmost good faith.

At the moment the provisions in the Insurance Contracts Act concerning the duty of utmost good faith broadly work this way:-  

• Section 11 defines the duty of utmost good faith as the duty referred to in Section 13.  So all eyes turn to Section 13.
• Section 12 lays down some of the groundwork. It says that Part II of the Act (which includes Section 13) is not to be read down by any other Law including any other provision of the Insurance Contracts Act. It also says that Part II does not impose upon an insured in relation to its disclosure obligations any duty greater than the duty of disclosure.
• Section 13 is the jewel in the crown.  Firstly it says that a contract of insurance is based upon utmost good faith. Secondly it says that it is an implied term of the contract that each party to that contract will act towards the other with utmost good faith in respect of every matter which arises under the contract.
• Section 14 says that a party cannot rely upon a provision of a contract of insurance if that would involve a failure to act with utmost good faith.

So what will the Bill do if it becomes law ?  There will be some minor reshuffling of section numbers which I will not worry about for the purposes of this blog. Beyond that, here are the key bits.

• A failure to comply with the implied duty of utmost good faith will be a breach of the requirements of the Insurance Contracts Act and, as such will, amongst other things, invite ASIC interest pursuant to Section 55A.
• A reference to a party to the contract will include a reference to a third party beneficiary (which the Act will specifically define) but only after the contract of insurance has been entered into.
• ASIC will be entitled to treat a failure to act with utmost good faith in the handling of a claim or potential claim, as a failure to comply with a financial services law as defined under the Corporations Law.

There will be bit of a sting in the tail if an insurer, in particular, fails to act with utmost good faith.

So to which contracts of insurance will these proposed amendments apply.

Firstly they will apply to all contracts of insurance entered for the first time after these proposed amendments commence.

Secondly they will apply to all contracts of general insurance entered before these proposed amendments commence and renewed after they commence.

 Thirdly they will apply to all contracts of life insurance entered before these proposed amendments commence and varied by agreement in terms of the sum insured or the types of cover offered, after these amendments commence. 

 The Insurance Contracts Amendment Bill 2013 gives the duty of utmost good faith a real boost.

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Insurance Contracts Act – NewsFlash (II)

The Insurance Contracts Amendment Bill (2013) passed the House of Representatives last Tuesday (19 March 2013). It is now headed for consideration in the Senate.

We will see how it goes. This is becoming a bit of a race against time thriller bearing in mind the pending Federal Election and the fate of the 2010 Bill.

In the meantime, I will be releasing later today the first in a series of occasional blogs looking at the significant changes which the Bill makes to the Insurance Contracts Act.

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Insurance Contracts Act – NewsFlash

I have  previously posted blogs about the Insurance Contracts Amendment Bill 2013.

The Bill  was read in the House of Representatives for the first and second time last Thursday (14 March 2013). During the course of its second reading, the Government highlighted that the Bill will:

1. remove impediments to the use of electronic communication for statutory notices and documents;
2. make the duty of disclosure easier for many to understand and comply with;
3. make the remedies in respect of contracts of life insurance more appropriate to contracts of life insurance;
4. clarify the rights and obligations of third party beneficiaries; and
5. clarify the types of contracts which are excluded from the Act’s operation.

The Bill has been adjourned for further debate in the House of Representatives.

As the provisions which the Government has highlighted reveal, if passed the Bill will make some fundamental changes to the Insurance Contracts Act. 

These latest developments suggest that even though a Federal Election has been called in September this year, the Bill may ultimately be passed and thus avoid the fate of the 2010 Bill.

I will keep you informed of any further developments. 

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