As we reported in late February, the Ministry of Business, Innovation and Employment (MBIE) is seeking submissions on the exposure draft Insurance Contracts Bill. Submissions close on 4 May 2022.
MBIE’s consultation paper includes 39 questions to help frame submissions and submissions can address any number of questions or provide more general feedback. In addition MBIE has noted it welcomes feedback on discrete topics and these are highlighted throughout the consultation paper.
We anticipate the issues which are likely to attract most comment are:
- the approach which should be taken to give effect to the Government’s decision to remove the current exemption for standard form insurance contracts from the unfair terms provisions in the Fair Trading Act 1986 (FTA);
- the matters which should be taken into account when determining whether a policyholder has taken reasonable care not to make a misrepresentation; and
- the insurer’s remedies in the event a policyholder fails to take reasonable care not to make a misrepresentation.
The proposals around unfair contract terms warrant comment as the draft Bill proposes two distinct options for how the main subject matter is to be defined for insurance contracts.
Unfair terms – alternative options proposed
Option A defines the main subject matter in narrow terms and Option B defines the main subject matter more broadly. The options are found in clauses 171 and 172 of the draft Bill.
Option A – narrow definition
A term in a standard form consumer or small trade contract could not be declared unfair if it describes what is being insured or it is a transparent term that specifies the sum(s) insured or assured, or any excess or other deductible. Defining the main subject matter in narrow terms would align New Zealand’s law with the position in Australia and the United Kingdom.
MBIE considers this first option provides better protection for consumers. With this option, if an exclusion clause was challenged in Court as being unfair, an insurer would have to prove the term is “reasonably necessary to protect the legitimate interests” of the insurer in order to avoid the term being declared unfair. Insurers have said this option could create uncertainty and result in higher premiums. To address this concern, MBIE has included a second option.
Option B – broad definition
In addition to the thing insured or the risk insured against, the sum(s) insured, and any excess or deductible, the broader option would also allow policy limitations and exclusions which affect the scope of cover to be considered part of the main subject matter of the contract, and so not able to be declared unfair.
MBIE wants to hear from people and organisations about which option they prefer and why.
Other important issues
The Consultation Paper highlights several other important proposals for comment, including:
- Consumers’ duty to take reasonable care not to make a misrepresentation;
- Non-consumer policyholders’ duty of fair presentation of risk;
- Insurers’ remedies in respect of qualifying misrepresentations by consumers and qualifying breaches by non-consumer policyholders;
- Insurers’ duties in respect of information obtained from policyholders;
- Codification of the duty of utmost good faith;
- Partially novel provisions for a duty on specified intermediaries (such as brokers) to pass on information or representations to insurers, regardless of whether or not the intermediary is an agent of the insured;
- An extended reporting period for making claims under claims-made liability policies;
- Insurers’ ability to rely on increased risk exclusions;
- Third party claims for liability insurance money;
- The retention of premiums by specified intermediaries (brokers);
- Whether to modify the rule making interest payable on a claim under a life policy from the 91st day after death; and
- Requirements for consumer insurance contracts to be written and presented clearly.
If you have any questions about the draft exposure Insurance Contracts 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.