REFORMING INSURANCE LAW: - Law Commission

4.23 The section is hardly a model of clarity, and Treasury Review II, 2004, has proposed two
major reforms which have been adopted by the revised version of s 21A in the draft Insurance
Contracts Amendment Bill 2007. First, the section should extend to renewals: 100 the reason why
it was initially confined just to placement is uncertain. As is noted in the explanatory notes to the
2007 Bill, the change will mean that insurers will have to ask specific questions both on
placement, renewal and on any variation or reinstatement of the policy, 101 a duty which could be
satisfied by, for example, providing the assured with a copy of his previous answers, although
that approach is not to be mandatory. Secondly, and far more importantly, Treasury Review II
recommended the repeal of the exceptional circumstances provisions of s 21A(4)(b) in order to
match its proposed amendment of the “prudent assured” test in s 21(1)(b) which is to take into
account specific questions asked by insurers. 102 The effect of the proposed amendment is to
remove entirely the right of insurers to ask “catch all” questions even to pick up information
about exceptional circumstances: instead the risk that such exceptional circumstances might exist
is to be borne by the insurers. The draft revised, and far more clear and logical, version of s 21A
is as follows
21A.—(1) This section applies to an eligible contract of insurance.
(2) The insurer is taken to have waived compliance with the duty of disclosure in
relation to the contract unless, before the contract is entered into, the insurer requests the
insured to answer one or more specific questions that are relevant to the decision of the
insurer whether to accept the risk and, if so, on what terms.
(3) If:
(a) in accordance with subsection (2), the insurer requests the insured to
answer one or more specific questions; and
(b) the insurer asks the insured to disclose to the insurer any other matters
that would be covered by the duty of disclosure in relation to the contract;
the insurer is taken to have waived compliance with the duty of disclosure in relation to
those matters.
(4) If:
(a) in accordance with subsection (2), the insurer requests the insured to
answer one or more specific questions; and
(b) in answer to each specific question, the insured discloses each matter that:
(i) is known to the insured; and
(ii) a reasonable person in the circumstances could be expected to
have disclosed in answer to that question;
the insured is taken to have complied with the duty of disclosure in relation to the
contract.
(5) In this section: eligible contract of insurance means a contract of insurance that is
specified in the regulations.
100
Recommendation 4.2.
101
The definition of entering into a contract of insurance includes extension or variation: Insurance Contracts Act
1984, s 11(9).
102
Recommendation 4.2.
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