Unfair contract terms in insurance contracts

Treasury has released for consultation an exposure draft of the Treasury Laws Amendment (Unfair Terms in Insurance Contracts) Bill 2019 which will amend the Insurance Contracts Act to enable the unfair contract terms (UCT) regime under the ASIC Act to apply to insurance contracts covered by the Insurance Contracts Act.

Although the UCT laws apply to most financial products and services regulated by the ASIC Act, they do not currently apply to insurance contracts regulated under the Insurance Contracts Act 1984. The draft Bill extends the UCT regime to insurance contracts in response to Recommendation 4.7 of the Financial Services Royal Commission.

The Bill also amends the ASIC Act to tailor the existing UCT regime in its application to insurance contracts.

These changes are :

  • Main subject matter: The ASIC Act presently excludes terms that define the main subject matter of a contract from the UCT regime. The Bill will amend the ASIC Act to provide that the main subject matter of an insurance contract is limited to the description of what is being insured.
  • Transparent excess terms: The Bill will amend the ASIC Act to exclude terms that set the quantum or existence of the excess or deductible in an insurance contract from the UCT regime, as long as they are presented transparently.
  • Third party beneficiary: The Bill will amend the ASIC Act to allow for third party beneficiaries of insurance contracts to bring actions against insurers under the UCT regime.

Under the Insurance Contracts Act, parties to insurance contracts have an obligation to act with the utmost good faith. The Bill does not impact this obligation, with the duty of the utmost good faith operating independently of the UCT regime.

The UCT regime will apply to new insurance contracts from the date of commencement of the amendments. The amendments will commence 18 months after the date of Royal Assent.

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