Our German Desk
For our previous articles concerning the Bill, please click here and here.
The Contracts of Insurance Act passed into law on 15 November 2024. Although the Act will come into force over a period of time, insurers are already having regard to the changes which have been signalled for some time. We set out the most important developments that we think will impact our insurance clients:
- The duty of disclosure for an insured has changed.
- It is harder for insurers to avoid policies.
- Payments must be within a “reasonable time”.
- New drafting rules for policies.
Insurance laws in New Zealand have previously been found scattered within a number of Acts, Regulations and the common law. The Contracts of Insurance Act was designed to provide an omnibus Act to streamline insurance law and swing the pendulum in favour of consumers. This will complement the CoFI legislation[1] that is enforceable in March 2025.
The duty of disclosure
The Act will remove an insured’s common law duty to disclose matters that a “reasonable insurer” would find material to the placement of the risk. The new duty for all consumers is to take reasonable care to not make a misrepresentation to an insurer when entering into an insurance contract.
What will be found to be a misrepresentation? The Act defines a misrepresentation as one that is deliberate or reckless. If the insured is a “consumer” then under the Act, when considering whether reasonable care has or has not been taken in making the misrepresentation, the Court can take into account the steps the insurer took to address the fact that a consumer failed to answer its question(s) or gave an obvious incomplete or an irrelevant answer at the time of placement.
If the insured is a non-consumer then it has a duty to make a “fair presentation of the risk” prior to entering into the policy. No insureds are required to disclose information that the insurer knows, or ought to know.
The effect is that an insured is no longer obliged to volunteer information to an insurer, but instead it must take care not to answer any of the insurer’s questions incorrectly. In our view this will mean that insurers and brokers will ask a lot more questions at the time of placement.
Harder for insurers to avoid policies
If the insurer cannot show that the consumer failed to take “reasonable care” to not make a misrepresentation then the insurer’s remedies will depend on whether or not it would have entered into the insurance contract at all. If an insurer can show that it would not have written the policy at all, it can avoid the policy but must return the premium. If it would have written the policy on different terms, the policy may be amended to reflect those terms. If it would have charged a higher premium, the insurer is entitled to proportionately reduce the amount it pays for the claim by the amount of the higher premium.
Implied term for payments
Where a claim is made under a policy, an insurer must pay any sums due in respect of the claim within a “reasonable time”.
We foresee that there will be a number of complaints by insureds and possible claims against insurers for repayment of lost interest and damages for purportedly late payments.
New drafting rules
The Act amends the Financial Markets Conduct Act 2013 to require insurance contracts to be worded and presented in a clear, concise, and effective manner. Our team has expertise in assisting insurers with drafting certain policy documents and disclosures under the CoFI regime and anticipate further reviews of policies to comply with the Act.
If you have any questions about the Contracts of Insurance Act, please get in touch with our 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] An overview of the Financial Markets (Conduct of Institutions) Amendment Act 2022 is found here.
