24.04.2024

Insurance Contract Law – Parliament finally gets to consider long-awaited reforms

The Government’s Contracts of Insurance Bill was introduced on 30 April 2024.  See our article on this Bill.

In February 2022, the Ministry of Business, Innovation and Employment (MBIE) released an exposure draft of the Insurance Contracts Bill (MBIE’s Draft Bill) for public consultation and feedback.  MBIE’s Draft Bill proposed to consolidate and modernise the country’s disparate insurance legislative regime into a single primary statute and to implement the Labour Government’s key policy changes for consumers.  These changes included amending the policyholder’s duty of disclosure, removing the existing exemption for insurance contracts from the unfair contract terms provisions in the Fair Trading Act 1986 (FTA) and requiring insurers to present their policy wordings clearly.  For our previous article on MBIE’s Draft Bill, please click here.

Submissions on MBIE’s Draft Bill closed in May 2022.  It was widely anticipated that following review of these submissions, the then Labour Government would introduce a Bill during their term of government.  This did not occur.  However, the previous Government’s work has now emerged (literally out of the biscuit tin) as a Member’s Bill. 

There are some important differences between MBIE’s Draft Bill and the Member’s Bill.  We have produced a table showing the changes between the two.  We also highlight some notable aspects of the Member’s Bill in this article.

An additional purpose

The Member’s Bill includes the protection of the interests of consumers under insurance contracts as an extra purpose of the reforms and modernisation of insurance contract law.

Disclosure obligations

Presently insureds must disclose information that would influence the judgment of a prudent underwriter in setting the premium or deciding whether to take on the risk of providing insurance when entering into a contract of insurance and on each renewal.  The Member’s Bill proposes that for consumers this obligation is replaced by a duty to take reasonable care not to make any misrepresentation.  The Member’s Bill has included a new clause which provides the policyholder must not be taken to have made a misrepresentation where:

  • the insurer was not misled by the consumer; or
  • the misrepresentation did not affect the underwriting decision of the insurer.

For non-consumer insureds (mainly businesses) the policyholder must make a fair presentation of the risk to the insurer before the non-consumer insurance contract is entered into or varied. 

Like the earlier MBIE Bill, the Member’s Bill proposes “proportionate” remedies in any instance in which the insured breaches its duty and the insurer proves that without the misrepresentation it would not have entered into the contract or would have done so only on different terms.  Schedule 2 to the Member’s Bill sets out the insurer’s remedies according to whether the misrepresentation or breach was deliberate or reckless or neither of these.

“Utmost good faith”

The Member’s Bill proposes to:

  • codify the longstanding principle that parties to an insurance contract owe duties of “utmost good faith”; and
  • extend this duty to include a duty on insurers (including Toka Tū Ake) to accept (or reject), assess and settle a claim within a reasonable period of time.

Interest on unreasonably withheld payment

The Member’s Bill proposes an obligation on insurers to pay interest on sums that an insurer is liable to pay to an insured from the date on which “it becomes unreasonable for the insurer to withhold payment” until payment.  The Member’s Bill provides that it is unreasonable for an insurer to withhold payment beyond 12 months after the date on which a claim is made, unless, in the circumstances, it is reasonable for the insurer to withhold payment until a later date.

The obligation to pay interest already exists in the context of life insurance under the Life Insurance Act 1908 (where an insurer is liable to pay interest from the 91st day until the claim is paid).  The Member’s Bill proposes to keep this duty, though reducing the period from 91 to 30 days.

Unfair terms

The FTA prohibits unfair terms in standard form consumer contracts, but it currently carves out exceptions for certain insurance contract terms.  There has been significant criticism that these insurance-specific exceptions mean that consumers are not protected from genuinely unfair terms. 

The MBIE Draft Bill contained two proposals to amend the current position.  The Member’s Bill has included what was known as ‘Option A’.  A term in a standard form insurance contract will not be an unfair contract term to the extent it defines what is being insured.  The definition of main subject matter means that policy limitations and exclusions that affect the scope of cover would be subject to review for unfairness. 

Further, a term in a standard form consumer contract or standard form trade contract will not be an unfair contract term to the extent:

  • the term is transparent,
  • was disclosed at or before the time the contract was entered into; and
  • specifies the sum or sums insured or assured; or
  • the policy excess/deductible.

The Marine Insurance Act 1908

While the Member’s Bill does not generally extend to marine insurance, it does propose to repeal several of the disclosure, warranty and exclusion provisions of the Marine Insurance Act 1908, and the legislation (if enacted) would prevail wherever it conflicts with the 1908 Act.

A substantive difference in the Member’s Bill compared with MBIE’s Draft Bill is the inclusion in the Member’s Bill of a proposed amendment to s 40 of the 1908 Act, which would prevent an insurer from relying on the breach of a warranty of the seaworthiness of a ship if the insured can prove the loss was not caused by the matters that gave rise to the breach of the warranty.

What comes next?

The Bill was listed on the Order Paper for debate on 11 April 2024 (the last sitting day for Parliament at the time this article was published), but it is still to have its first reading.  If the Bill is sent to a Select Committee after the first reading, then there will be the opportunity to make submissions.

If you have any questions about the draft Bill, 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.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry
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.

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