REFORMING INSURANCE LAW: - Law Commission

elevant facts or the assured’s misstatement of relevant facts, contrary to the above provisions.
Cancellation is not automatic but has to be preceded by notice under s 59: 14 days for general
insurance and 20 days in the case of life insurance. This means that if the insurers are unable to
avoid (avoidance only being open to them in the case of fraud) the policy remains valid and the
assured is entitled to be paid his claim subject to any relevant deduction under s 28(3). The right
to cancel on its face appears to be a very blunt weapon and the author is of the view that there
should be some restriction on the right, perhaps confined to cases in which the insurers would
never have insured at all had the true position been known. There is certainly an argument that
permitting the policy to continue on varied terms is a far better prospect in cases where the
insurers would not have declined cover.
Life insurance: misrepresentation 175
4.57 It was noted earlier that s 25 of the Insurance Contracts Act 1984 deals with the situation in
which the policyholder and the life assured are not the same person, and that the effect of s 25 is
to treat any false statement by the life assured as if it had been made by the policyholder. As will
be seen below, it is proposed to extend this principle to non-disclosure by the life assured.
4.58 Life policies are commonly made incontestable after a fixed period, commonly three years.
This principle was enshrined in legislation in Australia by s 84 of the Life Insurance Act 1945,
which prevented the avoidance of a life policy for written misrepresentation after three years
from its inception. The section did not apply to oral misrepresentation or to non-disclosure. The
ALRC felt that the provision should be retained in order to protect the beneficiaries of life
policies, but that it should be extended to oral misrepresentation and non-disclosure and that it
should apply in the absence of fraud so that negligence would be encompassed. The ALRC also
thought it right to protect an insurer who would not have contracted at all, by allowing avoidance
within three years. 176 In other cases the proportionality approach rejected for general insurance
should be applied to life insurance. These recommendations take the form of s 29 of the
Insurance Contracts Act 1984, which differs in some significant respects from s 28. The section
does not apply to misrepresentations of age, which are dealt with separately in s 30. In respect of
a life policy 177 insurers must initially prove that they would not have entered into a contract on
any terms 178 but for misrepresentation or non-disclosure, ie, that they were induced by the
presentation of the risk. This is so even if there is fraud. 179 If the inducement requirement is
175 Boyd, “The duty of disclosure in life insurance: is the balance struck by Part IV of the Insurance Contracts Act
appropriate?” (2001) 13 Ins LJ 59; Sutton, paras 3.161 to 3.163.
176 ALRC 20, para 198.
177 Treasury Review II, 2004, recommended that where a policy covers life and non-life elements, it should be
“unbundled” so that s 29 applies only to the life elements: recommendation 7.1. This recommendation is adopted in
the 2007 proposals for reform.
178 This is apparent from the use of the phrase “the contract” as opposed to “a contract”: Hoare v Mercantile Mutual
Life Assurance Co Ltd (2002) 12 ANZ Ins Cas 90-110; Tyndall Life Insurance Co Ltd v Chisholm (2000) 11 ANZ
Ins Cas 90-104; Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd [2003] QCA 182. Treasury Review
II, 2004, noted in paras 7.21 and 7.22 that the test was pitched at a high level in that there is no inducement if
insurers would have entered into a contract on different terms. The Review’s recommendation 7.2 was that the
provision should be recast to refer to “the contract” as opposed to “a contract”.
179 Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd [2003] QCA 182.
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