The Financial Ombudsman Service Australia (FOS) has released a paper on its Approach to the Cancellation of Instalment Contracts. The paper provides insight into what FOS focuses on when considering these disputes.
For cancellation by the insurer to be effective it must be done in accordance with the Insurance Contracts Act (ICA). The report considers both when FSPs provide notice of cancellation at the time of exercising the right and when FSPs rely upon prior notice of an intention to cancel should an instalment be unpaid.
In reviewing disputes arising due to the cancellation of instalment contracts, FOS will consider the following matters:
- When the right of cancellation arose;
- Whether the FSP exercised its right of cancellation in a clear and unequivocal manner;
- Where the FSP provided notice of cancellation, whether:
- the notice was clear and unequivocal;
- the FSP complied with the requirements of sections 59 and 72(A) of the ICA;
- the appropriate timeframe has lapsed.
- Where the FSP did not provide notice of cancellation because it was contained in a provision of the policy (section 62 of the ICA), whether;
- the policy provision clearly informed the consumer that it would cancel the policy without notification;
- the appropriate minimum timeframe has lapsed (30 days);
- the FSP exercised its right consistent with the policy provision.
FOS takes the position that contracts cannot be cancelled retrospectively.
FOS acknowledges that FSPs often send reminder letters to a consumer when an instalment payment has fallen overdue, however cautions that reminder letters may not always be sufficient evidence of an FSP exercising its right to cancel a contract. In these cases, FOS will determine whether the reminder letter:
- had the effect of cancelling the policy; or
- provided an extension of time (the FSP advised it would not exercise a right to cancel until the timeframe in the letter passed); or
- gave rise to a representation that the due date for payment of the instalment under the policy was extended and the consumer relied on this.
If an FSP has failed to cancel a policy in accordance with the ICA, any cancellation is void. FOS takes the view that this will generally apply where:
- the FSP cancelled the policy before a right to cancel the contract arose;
- the FSP sent a letter attempting to cancel the policy that was not expressed in a clear and unequivocal manner; or
- section 62 of the ICA has not been satisfied when cancelling a contract without notice.
The paper highlights FOS’s approach to a range of issues associated with disputes arising out of the cancellation of instalment contracts and is a useful reference tool for professionals involved in the general insurance industry.
FSPs should take care in reviewing their cancellation procedure to ensure that it addresses these issues as it is common for disputes regarding cancellation to be heard by FOS.
The full report can be read here.