The long wait for the first disclosure draft of the new Insurance Contracts Bill (Bill) is finally over. A copy of the Bill is available here.
We provide this overview of the key changes to New Zealand insurance law contained in the Bill. Our overview concentrates on reforms to the general insurance products.
Introduction
The Bill says the purpose of the proposed Insurance Contracts Act 2022 is to reform and modernise insurance contract law to:
The Bill applies to contracts of general insurance, life insurance and reinsurance. The Bill repeals the following Acts:
While the Bill does not repeal the Marine Insurance Act 1908, it makes that Act subject to the provisions of the Bill. In other words, the Bill overrides anything in that Act to the contrary.
Duty of disclosure
The Bill sets up a new regime for the duty of disclosure that completely replaces the current law. Different duties apply to consumer versus non-consumer policies.
Consumer policies are defined as those entered into by a policyholder wholly or predominantly for personal, domestic, or household purposes. Note that this definition is more subjective than the one in the Consumer Guarantees Act 1993 as it omits the words: ‘of a kind ordinarily acquired for … ‘.
Non-consumer policies are all policies that at not consumer policies
Consumer policy duty of disclosure
The Bill creates a duty on policyholders of consumer policies to take reasonable care not to make a misrepresentation to the insurer before the policy is entered into or varied.
Whether the policyholder has taken reasonable care is to be determined (by the court effectively) by having regard to all relevant circumstances, including:
c) how clear, and how specific, any questions asked by the insurer of the policyholder were;
d) how clearly the insurer communicated to the policyholder the importance of answering those questions and the possible consequences of failing to do so;
Note that to make a misrepresentation requires the policyholder to make a representation to the insurer in the first place. Therefore, it seems that a policyholder who is asked no questions and who offers no material information to the insurer can never breach the duty.
This sends a clear message to insurers: the onus is on them to ask all the questions they require to be satisfied whether to take the risk on and if so, on what terms. If the insurer misses a key question out, and the policyholder volunteers no information in relation to the subject matter of that question, there is unlikely to be a breach of the duty.
The Bill restates the current common law (judge made law) that the policyholder does not make a misrepresentation by simply failing to answer a question asked by an insurer or by giving an obviously incomplete or irrelevant answer. The onus is on the insurer to follow up on this.
The Bill carries over the effect of the current section 10 (2) of the Insurance Law Reform Act by stating that a policyholder’s representation made to an insurance broker (someone receiving commission from the insurer) is deemed to be made to the insurer. But see further below about a new provision allowing the insurer to recover any loss it suffers caused by the insurance broker failing to pass it on.
Non-consumer policy duty of disclosure
We are pleased MBIE decided to follow the English Insurance Act 2015 about the duty of disclosure for non-consumer policies. We believe these provisions have been carefully drafted and strike a good balance. There is the added bonus that English case law about the provisions will be helpful to the New Zealand courts when interpreting the same provisions in the proposed Insurance Contracts Act 2022.
The Bill creates a duty on policyholders of non-consumer policies to make a fair presentation of the risk before the policy is entered into or varied. In summary a fair presentation is one with the following key attributes:
3. The disclosure is made in a reasonably clear and accessible manner (no dumping of substantial amounts of potentially irrelevant data on the insurer).
The Bill defines the word ‘material’ in the same way as the current law: a circumstance that would influence the judgement of a prudent insurer in determining whether to take the risk on and if so, on what terms.
The Bill says a circumstance is ‘substantially correct’ if a prudent insurer would not consider the difference between what was represented and what is actually correct to be material.
For the purposes of satisfying the duty of fair presentation, the Bill spells out various situations where the policyholder and the insurer are deemed to know circumstances or are deemed that they ought to have known those circumstances as follows.
Knowledge of policyholder
In a helpful move for insurance brokers, the Bill clarifies that a policyholder is not deemed to know confidential information known to a policyholder’s agent (insurance broker) if the information was acquired by the policyholder’s agent through a business relationship with a person who is not connected with the contract of insurance.
The Bill states that in all cases a policyholder ought to know what should have been revealed by a reasonable search of information available to the policyholder whether the search is conducted by making enquiries or by any other means). This overcomes a policyholder turning a ‘blind eye’ to information.
Knowledge of insurer
An insurer is deemed to know information only if it is known to one or more of the following:
An insurer ought to know information if:
Remedies
The remedies for a breach of the duty of disclosure (consumer) and the duty to make a fair presentation (non-consumer) are the same. In both cases the insurer only has a remedy if it proves that without the breach, the insurer:
If it would not have entered into the contract at all, it can:
If it would have entered into the contract on different terms (other than the premium), the contract must be treated as if it were entered into on these different terms.
If it would have entered into the contract on different terms in relation to the premium, the insurer can reduce the amount payable on a claim by way of a formula set out in the Bill.
If the policyholder’s breach was deliberate or reckless, the insurer is not required to refund the premiums.
Insurer’s duties
Before a contract of insurance is entered into or varied, the insurer has a duty to inform the policyholder orally or in writing of the following:
The Bill introduces a new duty requiring an insurer to disclose that it may rely on third party information where this is the case. This seems to be aimed at life and health insurers in relation to medical records.
Where an insurer requires a potential policyholder to give the insurer access to information about the policyholder from a third party (e.g., doctor), the insurer must, before the contract of insurance is entered into, clearly inform the policyholder orally or in writing whether the insurer may actually access and take into account that information when deciding whether to enter into the contract.
If an insurer breaches either of the above duties, then its remedies for breaches of the duty of disclosure or duty to make a fair presentation referred to above only apply:
In addition, the insured may incur civil liability under section 449 of the Financial Markets Conduct Act 2013.
Insurance brokers duty
Where an insurance broker knows of a representation (consumer) or a material circumstance (non-consumer) by the policyholder, the insurance broker has a duty to pass on the representation/circumstance to the insurer before the insurer enters into the contract of insurance.
The only exception to this is if the insurance broker believes on reasonable grounds that the representation/circumstance is, in fact, a misrepresentation.
If an insurance broker breaches this duty, the insurance broker is liable to the insurer for the loss it suffers as a result.
Insurance Law Reform Acts
The Bill carries over many of the existing reforms in these Acts. We mention several where the Bill makes key changes:
Section 9 Insurance Law Reform Act 1977 – Time limits on claims under contracts of insurance
This reform is largely carried over, but it now includes an exemption from the reform for claims-made policies. The exemption only applies if the insurer gives notice in writing to the policyholder of the effect of a claims-made policy within the period stated.
Section 11 Insurance Law Reform Act 1977 – Certain exclusions forbidden
This reform is largely carried over, but it now includes exemptions from the reform for exclusions relating to:
Section 9 Law Reform Act 1936
This section and its related sections about third party actions direct against insurers will be repealed entirely.
They are replaced by a near equivalent of the NSW’s Civil Liability (Third Party Claims Against Insurers) Act 2017. That Act appears to avoid the technical problems with the New Zealand Act by doing away with the concept of a charge over the liability policy.
Insurance Intermediaries Act 1994
This Act will be repealed entirely, and its near equivalent appears as Part 4 of the Bill.
Life Insurance Act 1908
This Act will be repealed entirely, and the near equivalent of the sections still in force appear as Part 5 of the Bill.
Submissions
The deadline for making submissions about the Bill close on Wednesday 4 May 2022.
This is a generational change in New Zealand’s core insurance law, and we recommend all interested parties make submissions.
Please contact us if we can assist you with these, or if you seek further details about the Bill.
Keegan Alexander
