Australia’s Insurance Contracts Act 1984 serves as a guidepost for all insurance holders and companies in the country. This is an important legislation because it regulates insurance contracts. It also provides for a certain set of rules that insurance companies must follow.
Having a legislation that regulates insurance contracts provides for a two-fold purpose:
- To protect of both consumers and insurance companies.
- To maintain fairness in insurance contracts and other relevant insurance documents
In simple terms, the Insurance Contracts Act 1984 protects you, as a consumer, when the insurance company denies your claim. This law gives you a legal recourse to dispute such denial and prevents insurers from denying claims on unreasonable grounds.
Basically, such a contract is an agreement where one party agrees to indemnify another person for loss, damage, or liability. This agreement carries with it a certain consideration for the person who agrees to indemnify the insured.
This article will discuss provisions of the Insurance Contracts Act and will serve as an overview of this legislation.
Insurance Contracts Act 1984: The Duty of Utmost Good Faith
What does the ‘duty of utmost good faith’ mean? Under Part II of the Act, this phrase means:
“In a contract of insurance, each party performs its obligations towards the other party of the contract with utmost good faith.”
What if a party fails to execute this duty in the course of their contractual relationship? If so, Section 13 emphasises that such failure will constitute a breach of the requirements under this Act. Thus, if the insurer fails to do their part, they are liable to a civil penalty of 5,000 penalty units.
Insurance Contracts Act 1984: Insurable Interests
Generally, insurable interests are any interest in property or liability that is characterised by the possibility that the insured person might be in danger.
Under Section 16 of the Act, a general contract of insurance is not void although the insured party did not have any interest in the contract’s subject matter when they entered into the agreement.
Moreover, Section 17 specifies that, at the time of loss, legal or equitable interest need not be present. Thus, the insurance company is still liable under the contract although the insured did not have an interest at law or in equity in the property at the time of loss. This rule also applies to:
- A contract of life insurance
- A contract that provides for the payment of money on the death of a person by sickness or accident.
The important thing is that the insured suffered a pecuniary or economic loss because of the destruction or damage of the subject matter of the insurance contract. Moreover, Section 20 of the Act states that the insurance company is still liable even if the beneficiaries don’t have their names in the policy document.
Insurance Contracts Act 1984: Duty of Disclosure
Misrepresentation in consumer insurance contracts is a big no-no. This is because the insured has the duty to take reasonable care not to make a misrepresentation to the insurer before entering into the agreement.
What’s the significance of this prohibition? A misrepresentation might indicate fraud which will constitute a breach of the duty to disclose the correct information.
Under Section 20B, there’s a list of matters that should determine the existence of misrepresentation because the insured did not take reasonable care to avoid doing so:
- the type of consumer insurance contract in question, and its target market;
- explanatory material or publicity produced or authorised by the insurer;
- how clear, and how specific, any questions asked by the insurer of the insured were;
- how clearly the insurer communicated to the insured the importance of answering those questions and the possible consequences of failing to do so;
- whether or not an agent was acting for the insured;
- whether the relevant contract was a new contract or was being renewed, extended, varied or reinstated.
Insurance Contracts Act 1984: Remedies
The Insurance Contracts Act offers the insured certain remedies when insurers refuse to pay claims. Section 54 definitively enumerates the instances when insurers are not allowed to refuse to pay claims:
- Where the insured proves that no part of the loss that gave rise to the claim was caused by the act.
- Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act.
- Where the act was necessary for the protection of a person or preservation of property.
- Where it was not reasonably possible for the insured person to not do the act.
Insurance Contracts Act 1984: Types of Claims
Under Part VI of the Act, there are two types of claims:
Fraudulent Claims
A fraudulent claim exists when a claim under a contract of insurance, or a claim made under the Act against an insurer by a person who is not the insured under a contract of insurance, is made fraudulently. In this case, the insurer may not avoid the contract but may refuse payment of the claim.
For proceedings in relation to fraudulent claims, the court may order the insurer to pay such amount as long as it is just and equitable in the circumstances. Particularly, the court may do so if:
- only a minimal or insignificant part of the claim is made fraudulently and
- non-payment of the remainder of the claim would be harsh and unfair.
To exercise such power, the court shall have regard to the need to deter fraudulent conduct in relation to insurance but may also have regard to any other relevant matter.
Interest on Claims
For interest on claims, if an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person.
The interest is payable within the period from the day from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
- the day on which the payment is made;
- the day on which the payment is sent by post to the person to whom it is payable.
As to the applicable rate, it is the rate in respect of that day that is prescribed by, or worked out in a manner prescribed by the regulations.
Consult a Contract Lawyer Today
If you’re having problems with your insurance claims or your insurance contracts, seek the legal expertise of a contract lawyer from JB Solicitors. Our experienced lawyers can provide you the following services:
- Explain the salient provisions of the Insurance Contracts Act 1984.
- Review certain contracts such as an insurance contract or liability insurance contract
- Provide insurance cover advice about your insurance claim issue.
- Legal guidance in making decisions regarding insurance-related matters.
- Court representation for a reasonable person and help monitor legal judgments on the matter relevant to general insurance, if needed.
- Contest the ASIC if they review administrative arrangements that are unfair
Contact us today to know more about the Insurance Contracts Act 1984.
