REFORMING INSURANCE LAW: - Law Commission

and investment policies with surrender values. Since then, other forms of life cover, including
income protection and total permanent disablement and bundled contracts, have developed, and
it may not be appropriate to apply the old life rules to these new forms of agreement. This point
has been picked up in the draft Insurance Contracts Amendment Bill 2007, which has introduced
a series of new provisions. Most importantly, a distinction has been drawn between life and
investment policies and other forms of life cover. Section 29 is to be amended to be confined to:
“(a) a contract of life insurance the primary purpose of which is to provide insurance cover in
respect of the death of a life insured; or (b) a contract of life insurance that has a surrender value”
(new s 29(1A). Other forms of life insurance, those which do not provide cover on death or have
a surrender value, are to be governed by a new s 28A which brings them into line with the
general rules on remedies in s 28.185 Draft s 28A provides as follows
into;
(1) This section applies if the person who became the insured under a contract of life
insurance upon the contract being entered into:
(a) failed to comply with the duty of disclosure; or
(b) made a misrepresentation to the insurer before the contract was entered
but does not apply if the insurer would have entered into the contract, for the same
premium and on the same terms and conditions, even if the insured had not failed to
comply with the duty of disclosure or had not made the misrepresentation before the
contract was entered into.
(2) This section does not apply if the contract is a contract of life insurance within the
meaning of section 29.
(3) If the failure was fraudulent or the misrepresentation was made fraudulently, the
insurer may avoid the contract.
(4) If the insurer is not entitled to avoid the contract or, being entitled to avoid the
contract (whether under subsection (3) or otherwise) has not done so, the liability of the
insurer in respect of a claim is reduced to the amount that would place the insurer in a
position in which the insurer would have been if the failure had not occurred or the
misrepresentation had not been made.
4.61 Draft s 28A is subject to the general power of the court in s 31 to grant relief in cases of
fraud (and, if the rest of the 2007 Bill is adopted, in all cases).
Life assurance: non-disclosure
4.62 It is the practice in Australia for life insurers, when faced with an application for life
insurance on a person who is not to be the policyholder, to make inquiries about the health of the
life assured and to require that person to undergo a medical examination. To that end, s 25 of the
Insurance Contracts Act 1984 states that if the life assured makes a relevant false statement to the
insurers, they are entitled to treat the statement as if it had been made by the policyholder
185 This distinction is supplemented by draft new 27A of the 1984 Act, which unbundles policies providing both life
risks within s 29 and other life risks outside s 29 or non-life risks. In those circumstances, the legislation applies, in
relation to each of those kinds of insurance cover, as if the contract provided only that kind of insurance cover.
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