Insurance Contracts Act - Changes to Insurance Law and Practice for Insureds, Insurers and Brokers

Important amendments to the Insurance Contracts Act 1984 (Commonwealth) (“the ICA”) were expected to be passed by the Commonwealth Government in the Spring session of the 2010 Parliament. Their passage will now have to await the sitting of the new Parliament in late 2010.

If the ICA is passed, some amendments will apply immediately but others will not take effect for up to 18 months. 

The Bill omits the proposed changes to section 54 and section 40 that would have significantly changed “claims made” and “claims made and notified” policies.   These changes were considered contentious and have been omitted.    Most of the other changes to the Act are non-contentious and basically represent a fine tuning of existing provisions. 

What Then is Being Amended and Changed? 

1. Given the problems associated with bundled workers’ compensation policies, such policies are now exempted from the ICA.
2. 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 ICA. This will allow ASIC to bring representative and other actions against an insurer including litigation under the Corporations Act. Although the duty applies equally to an insured, it has not been extended in the same way.
3. The Electronics Transactions Act will be amended so that written notices may now be sent electronically under the ICA such as for renewal.
4. The insured’s duty of disclosure has been amended. Under section 21 (1), an insured has a duty to disclose every matter that is known to the insured which the insured knows 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 which the court must consider in determining whether an insured has failed to disclose to an insurer. That factor is the nature and extent of the insurance cover to be provided under the relevant policy.  
5. One of the more significant changes is to the duty of disclosure in relation to “eligible contracts”.   An eligible contract is defined in the ICA Regulations – Regulation 2b. The existing section of the ICA (section 21(A) only applies when the relevant eligible contract is first entered into.  The section is now 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 21(B) will apply to the renewal of eligible contracts.   This will impose significant new obligations on insurers that currently do not exist. 
6. Another change is the introduction of a new definition of “third party beneficiary”. Under the existing ICA, the term “third party beneficiary” is now used in a number of provisions other than in section 48.   Under the amendments, 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.  
7. Third party beneficiaries have been given the right to access the insurance of insureds in circumstances where the insureds die or cannot be found.
8. Subrogation recovery rights have been significantly amended and extended so that they now apply to third party beneficiaries who may now exercise rights of subrogation.

This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.