The Insurance Contracts Amendment Act (Amendment Act) was finally passed on 28 June 2013, making various and long-awaited changes to the Insurance Contracts Act (ICA). Many of the changes to the ICA have already taken effect as from 28 June 2014. The final wave of changes will come into effect on 28 December 2015.
The Amendment Act makes changes to the ICA by:
- expanding the scope and application of the duty of utmost good faith;
- allowing insurers to provide notices electronically;
- expanding the powers of ASIC to intervene in any matter arising under the ICA;
- clarifying the duties of disclosure;
- reforming the remedies of insurers in respect of life insurance policies;
- clarifying and extending the rights of third party beneficiaries under insurance policies; and
- amending section 67 to provide clear rules in respect of subrogated claims and the allocation of proceeds of recovery monies between insurer and insured.
Schedule 6 - third party beneficiaries
The focus of this update is to highlight the changes to sections 41, 48, 48AA, 48A and 51 of the ICA which commenced on 28 June 2014.
A definition of third party beneficiary has now been inserted into the ICA, meaning:
“a person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends”.
The new section 41 is amended to give third party beneficiaries the same rights as insureds to call on a liability insurer to advise whether it admits that a claim is covered and whether or not it intends to take over the defence of a claim. If the insurer fails to do so within a reasonable period of time then the insured, and now also the third party beneficiary, is relieved of any obligation it may have under the policy to not compromise a proceeding or not make any admission or payment.
Section 48 now provides that a third party beneficiary has the same obligations in relation to a claim as it would have if it were the insured. The amended section also confirms that an act or omission of an insured can now also be raised as a defence to a third party beneficiary claim.
Section 48AA is similarly worded and deals with defences that an insurer has against a third party beneficiary claim under a life insurance policy. Section 48A relates to the rights of third party beneficiaries under life insurance policies to bring a claim against an insurer directly. The intent of the amendments to sections 48 and 48AA is that third party beneficiaries should have the same rights, but also the same obligations, as the named insured in respect of their ability to claim.
Lastly, section 51 now encompasses the situation where a person who is not the insured but who is entitled to cover under a liability policy, has died or cannot be found. The claimant can now proceed directly against the insurer in that situation.
The changes to the sections discussed above apply to new insurance contracts made or renewed after 28 June 2014.