ASIC Takes Aim at Insurance Companies for Unfair Terms – Should New Zealand Insurers be Worried?

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.

As we reported last year, the Insurance Contracts Bill exposure draft aims to codify much of New Zealand insurance law and to bring about some significant reforms. These include:

  • 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 —

            Pre-existing Condition:

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 parties’ 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 companies 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.[1] 

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 will make insurers and insurance lawyers watch the ASIC proceedings carefully as the best indicator of what our future here in New Zealand will look like.

If you have any questions about the Insurance Contracts Bill or anything else insurance-related, please get in touch with our experienced Insurance Team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

[1] Clause 10 of the Insurance Contracts Bill exposure draft defines a “consumer insurance contract” as “a contract of insurance entered into by a policyholder wholly or predominantly for personal, domestic, or household purposes”.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Privacy Commissioner to consult on Privacy Rules for Biometric Information
With the increasing use of facial recognition technology (FRT), retinal scans, and voice recognition by an array of different agencies, privacy concerns about its collection and use are set to be form...
24.11.2023 Posted in Business Advice
Fern forest NZ
Bioenergy in New Zealand: Fuels for the Future?
The energy transition from combustion fuels to low carbon alternatives is viewed as critical in the race to cut global CO2 emissions and reach climate targets.  We look at some of the opportunities p...
14.11.2023 Posted in Business Advice & Climate Change & Forestry
Will Wide BW
A well drafted will is a craft
The New Zealand do-it-yourself “DIY” attitude and way of life is not limited to home improvements, but sometimes also extends to wills.  Recently we had a DIY $5.99 fill in the blanks will acros...
07.11.2023 Posted in Private Wealth
rsz large pillars
Health and Safety: The Consequences of Dishonesty
Siddhartha Gautama said that lies are like huge, gaudy vessels, the rafters of which are rotten and worm-eaten, and that those who embark in them are fated to be shipwrecked.  Two remarkable health a...
03.11.2023 Posted in Employment & Health & Safety
Properly sequencing your Construction Adjudications: Henry Construction Projects Ltd v Alu-Fix (UK) Ltd
According to the UK’s Technology and Construction Court (TCC) (in Henry Construction Projects Ltd v Alu-Fix (UK) Ltd [2023] EWHC 2010) valid payment claims must be paid before the underlying merits ...
30.10.2023 Posted in Construction & Disputes
Key change to rules on distribution of surplus assets under the new Incorporated Societies Act 2022
On 5 October 2023, the new Incorporated Societies Act 2022 (2022 Act) came fully into force, replacing the Incorporated Societies Act 1908 (1908 Act). One of the key requirements under the 2022 Act is...
18.10.2023 Posted in Business Advice
Construction Framework Wide BW
Major milestone passed – NZS3910:2023 expected in time to fill Christmas stockings
As the most widely adopted standard form construction contract in NZ, NZS 3910 was more than ready for updated conditions given the changes in the industry since its last review in 2013.  After almos...
09.10.2023 Posted in Construction
Send us an enquiry

For expert legal advice, please complete the form below or call us on (09) 375 8700.