REFORMING INSURANCE LAW: - Law Commission

different fate. On 9 September 1976 the Attorney General made a reference to the Australian
Law Reform Commission, under the chairmanship of Justice Michael Kirby, for a thoroughgoing
investigation of insurance law. The ALRC produced its seminal Report No 20, 14 Insurance
Contracts, in 1982, which included a draft bill. The reference and the report, unlike that in the
UK, was not confined to good faith and warranties, but covered virtually every aspect of
insurance law from formation to claims. The Australian Government, unlike its UK counterpart,
responded positively and passed the Insurance Contracts Act 1984 in much the same form as the
ALRC’s draft bill, 15 but with some important changes. That Act covers the field of insurance
generally 16 but does not apply to marine insurance, 17 so that the Marine Insurance Act 1909
continues to operate in that field. Also, the 1984 Act does not apply to reinsurance, 18 which is
governed by common law principles, 19 or to workers’ compensation, 20 export credits and –
unless otherwise provided – compulsory third party motor vehicle insurance. These forms of
cover have their own regimes. The 1984 Act has to date remained in force more or less as
originally enacted, the main changes being regulatory (the transfer of extended functions to the
Australian Securities and Investment Commission, ASIC 21 ). Two substantive changes of note,
which are considered below, relate to the removal of the need for insurable interest at inception
stage and the virtual abolition of the duty of disclosure in certain forms of domestic policies.
14 The ALRC had in fact produced an earlier report, Insurance Agents and Brokers, Report No 16. That Report was
implemented by the Insurance (Agents and Brokers) Act 1984 (Cth), although that Act has now been repealed and
re-enacted as Part 7 of the Corporations Law 2001 under amendments made by the Financial Services Reform Act
2001 (Cth).
15 The ALRC Report is regarded as authoritative in the interpretation of the 1984 Act: Commercial Union Co of
Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 391, per Kirby P; CIC Insurance Ltd v Bankstown
Football Club Ltd (1997) 187 CLR 384.
16 The Act is not, however, a complete code (other than in respect of the duty of utmost good faith and precontractual
non-disclosure and misrepresentation by the assured) and those matters omitted from it are regulated by
the common law: Insurance Contracts Act 1984, s 7. There are, accordingly, substantial similarities between English
and Australian law.
17 Although the Act was amended in 1998 by the insertion of section 9A, the effect of which is to apply the 1984 Act
to “pleasure craft”, namely a ship owned by individuals and used or intended to be used: wholly for recreational
activities, sporting activities or both; and otherwise for reward. The distinction is not always clear: see Gibbs
Holdings v Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 39.
18 Insurance Contracts Act 1984, s 9.
19 Most reinsurance is conducted in overseas markets, so the view in Australia is that any changes to reinsurance law
should be generated by those countries in which the industry is most significant. The author was told that any
changes to Australian law would depend upon changes made in the UK.
20 Insurance Contracts Act 1984, s 9. The exclusion for workers’ compensation has caused some difficulties. In
Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149 it was held that a policy which covered
compulsory liability under the workers’ compensation scheme and also non-compulsory common law liability was
within the 1984 Act insofar as the cover related to non-compulsory risks. Treasury Review II, 2004, has
recommended the reversal of this decision in workers’ compensation cases but not for other cases of bundled
policies: Recommedations 1.3 and 1.4. The draft Insurance Contracts Amendment Bill 2007 implements this
recommendation by removing from the scope of the Act any policy which covers both workers’ compensation and
employer’s liability (new s 9(1)(f)) and then adding two new provisions, s 9(1A) and 9(1B) so as to provide that in
the case of a “bundled” contract each element of the policy is to be considered separately. Accordingly, if a policy
covers both workers’ compensation and employer’s liability, the former aspect will be outside the Act but the latter
will be within it. This process is rather inelegantly referred to as “unbundling”.
21 Treasury Review II, 2004, has recommended in recommendation 3.1 that ASIC should be given a statutory right
to intervene in any proceeding relating to matters arising under the 1984 Act, a recommendation taken up in the
draft Insurance Contracts Amendment Bill 2007.
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