Recent court actions by the Australian regulator against insurers for unfair contract terms are a sign of what may be to come for New Zealand if the proposed Insurance Contracts Bill is enacted here.
- A duty to write and present insurance policies in a clear, concise, and effective manner;
- Changing the disclosure test for consumers from whether they told the insurer everything relevant to their decision to whether they answered clear and specific questions truthfully and accurately; and
- Prohibiting unfair contract terms in insurance policies, by bringing contracts of insurance within the scope of the Fair Trading Act 1986 (FTA).
ASIC’s Foreshadowing of Enforcement in New Zealand
Across the ditch, one year earlier (2021), the Australians were making the same change, amending the Australian Securities and Investments Commission Act 2001 (ASIC Act) to include insurance policies within their protections against unfair contract provisions.
Now (2023), the Australian Securities and Investments Commission (ASIC) has issued its first proceeding under these provisions, against the Auto & General Insurance Company Limited (Auto and General), and hot on its heels was a second proceeding against HCF Life Insurance Company Pty Limited (HCF Life).
ASIC argues that in both cases the contract terms used were unfair under section 12BG.
Section 12BG reads:
- A term of a contract … is unfair if: (a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and (b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and (c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
The term used by Auto and General was as follows —
Tell us if anything changes while you’re insured with us
While you’re insured with us, you need to tell us if anything changes about your home or contents.
If you don’t tell us about changes, we may:
- refuse to pay a claim • cancel your contract
- reduce the amount we pay • not offer to renew your contract.
Examples of changes we want you to tell us about, are:
Your insured property or address for contents changes You find out your home is heritage listed or has a heritage overlay Paying guests stay in your home, for example, Airbnb, Homestayz Your home is no longer in good condition You are moving out and rent your home to tenants You will start earning an income at your insured address Any construction, alteration, or renovation work will start or finish Security devices are removed, or broken Your home will be demolished, by you or a government agency You find out the building materials contain asbestos. Your property will be unoccupied for more than 60 days, or is occupied by trespassers
The definition used in HCF was —
Means any condition, illness, or ailment where the signs of symptoms of which in the opinion of a registered medical practitioner, existed at any time before the Cover Commencement Date, even if a diagnosis had not been made.
ASIC alleges that requiring disclosure ”of anything that changes about your home or contents” was unfair. In particular:
- It imposed an obligation which customers could not practically meet;
- It was misleading as to the insurer’s legal rights, and potentially misleading or confusing as to the customer’s obligations and rights;
- It caused a significant imbalance in the partes’ rights and obligations; and
- It was not reasonably necessary to protect Auto & General’s legitimate interests.
Similarly, defining “Pre-existing Condition” to include even medical conditions that the customer is unaware of was also unfair in terms of section 12BG.
Consequently, ASIC has sought declarations, injunctions, and corrective orders against Auto and General and HCF Life. As at the time of writing, these matters are awaiting trial.
Implication for New Zealand Insurers and Insurance Lawyers
Australia seems to be walking a few steps ahead of New Zealand in the insurance reform journey — having expanded its unfair contract provisions to include insurance policies, which has now resulted in proceedings against two insurance company for using unfair terms.
New Zealand is not far behind with the legislative reform proposed with the draft Insurance Contracts Bill. A 2021 amendment to the FTA, section 46L, is almost identical to section 12BG of the ASIC Act:
- A term in a consumer contract …is unfair if the court is satisfied that the term
(a) would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and (b) is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and (c) would cause detriment (whether financial or otherwise) to a party if it were applied, enforced, or relied on.
At present, FTA section 46L contains a carve-out for contracts of insurance. The Insurance Contracts Bill proposes to repeal subsections (4) and (5), so that consumer insurance contracts are subject to the same unfair terms test as other consumer or small trade contracts.
Given the similarities between the Australian and New Zealand unfair contract terms provisions, we can expect that enforcement actions here will follow a similar pattern once the draft Insurance Contracts Bill is eventually enacted. This makes insurers and insurance lawyers watch these ASIC proceedings carefully as the best indicator of what our future here in New Zealand will look like.