REFORMING INSURANCE LAW: - Law Commission

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Standard cover 8.28 Standard cover has been adopted for the most important classes of, primarily, domestic policies. 490 Sections 34 to 36 of the 1984 Act require insurers either to offer standard cover as laid down in regulations or to draw to the attention of a reasonable person in the assured’s position by clearly informing him of variations from that cover by providing the assured with a document containing the terms of the proposed contract or otherwise, 491 failing which they cannot rely on those variations for certain classes of claims. 492 As regards contracts not prescribed under these sections, there is a general prohibition, in s 37, preventing insurers from relying on a provision of a kind not normally included in a contract of insurance unless the assured (or his broker 493 ) was clearly informed 494 in writing of the effect of the provision. 495 This rule is replicated in, and arguably subsumed by, the good faith provisions of the 1984 Act, in particular s 14(3), which requires insurers to act in good faith when relying on policy terms. The <strong>Law</strong> <strong>Commission</strong>s do not at present seem to be proposing the equivalent of ss 34 to 36, although s 37 may be adopted indirectly in relation to the continuing duty of good faith, discussed below. The Unfair Terms in Consumer Contracts Regulations 1999 and also the Financial Services Authority’s Contract Certainty initiative achieve something akin to all of this, albeit by placing more faith on disclosure and market forces rather than by a starting point of standard terms. The adoption of standard terms is probably not an option for the UK, as the notification and approval of policy terms and premiums is prohibited under the European Union’s single insurance market regime. In Australia the main objection to notification has been that policy holders pay very little attention to the various standard form documents that are given to them, in particular because notification mainly takes place via the policy document itself, and that the provisions achieve very little. If there is to be disclosure, it should be in a separate document, as suggested by the ALRC. Nobody had a supportive word for them. The future of these provisions is uncertain, given the product disclosure rules which operate under the financial services legislation operative in Australia, and it may be that the two sets of provisions will ultimately merge. Treasury Review II, 2004, recommendations 5.3, 5.4 and 5.5 were on this basis concerned with bringing ss 34 to 37 in line with product disclosure requirements, in particular by allowing the sections to be complied with by use of a product disclosure statement. 8.29 The legislative proposals for the reform of the standard cover rules, published in February 2007, have, in line with the recommendations of Treasury Review II, modified the obligation in s 490 Motor, home buildings and contents, sickness and accident, consumer credit and travel: Insurance Contracts Regulation 1985, SI 1985 No 162, regs 5-29. Treasury Review II, 2004, recommendation 5.2, proposed a thorough review of the standard cover provisions to ensure that they accorded with current market practice. 491 Provision of the policy document itself may not be sufficient to “clearly inform” the assured if its words are unclear: Hams v CGU Insurance Ltd (2002) 12 ANZ Ins Cas 61-525; Marsh v CGU Insurance Ltd [2004] NTCA 1. Treasury Review II, 2004, recommendation 5.1, has suggested the replacement of “clearly inform” with a new specific test of communication in a “clear, concise and effective manner”. 492 See ALRC 20, paras 43, 45, 69-80. 493 Insurance Contracts Act 1984. s 71. 494 See n 120, supra. 495 The Act varies the ALRC’s recommendations in that the ALRC was of the view that the assured should receive a separate document setting out deviation from standard cover whereas s 37 provides that this can be done in the policy itself. Treasury Review II, 2004, para 5.13, was against any change in the law on this point, preferring the flexibility granted to insurers by s 37. 93
35 on insurers to notify the assured “clearly” of any deviation from standard cover. This is to be replaced by a new formulation in s 35(2A) of communication in a “clear, concise and effective” manner. The same formulation is adopted in respect of notifications under s 37 (new s 37(2)) in respect of non-prescribed policies. The suggestion in Treasury Review II that amending ss 35 to 37 to allow compliance with product disclosure requirements under the Corporations Regulations to suffice has not, however, been adopted: changes to the Corporations Regulations which take effect from 20 June 2007 are to require non-life insurers to disclose non-standard or unusual policy terms in their product disclosure statements, so that changes to the 1984 Act are not necessary. 496 Late payment of premiums 8.30 Sections 39 and 62 of the 1984 Act grant relief to an assured who is behind with instalments of his premium. 497 Under s 39, where a policy contains a provision which removes the liability of the insurers to meet a claim for non-payment of a premium, the insurers may invoke the term only if it had been drawn to the assured’s attention at the outset and the instalment is 14 days’ late. If the policy goes further and confers upon the insurers the right to cancel the policy for non-payment of the premium, that right can, in accordance with s 62, be exercised only if the term had been drawn to the assured’s attention at the outset and that at least one instalment of the premium has remained unpaid for at least one month. In the last 20 years it has become standard practice for instalments to be generated automatically by direct debit or standing order arrangements, so that if anything goes wrong there is likely to have been some error either at the assured’s bank or in the insurer’s own accounting department. As a result, these measures are probably no longer necessary, 498 although it would be a useful reform to reverse any rule of law which treats the bank 499 as the agent of the assured for the purpose of paying instalments. Claims made and notified liability policies 8.31 Section 40 of the 1984 Act addresses a problem which has not arisen in England. In recent years it has become the practice to issue liability policies covering professional negligence risks on a “claims made” basis: these types of policy have become increasingly popular, and in the UK in the last decade they have even been used in employers’ liability covers, albeit with doubtful legality given the possibility of a conflict with the requirements of the Employers Liability (Compulsory Insurance) Act 1969. The essence of a claims made policy as the concept is understood in the UK is that the insurers are liable for any claims first made against the assured by a third party during the currency of the policy, subject to the obligation of the assured to notify the insurers of any claim either within a given period or as soon as is reasonably practicable: it is not essential for the assured’s notification to have taken place inside the policy 496 The question whether the same obligation should be extended to life insurers is out for consultation. 497 ALRC 20, paras 253-254. 498 The one context in which they might be useful is marine, where the broker rather than the assured pays the premium. However, the 1984 Act does not apply to marine insurance. 499 Or, in marine, the broker. 94
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REFORMING INSURANCE LAW: IS THERE A
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6 FRAUDULENT CLAIMS 6.1 Meaning of
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legislation as it relates to substa
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different fate. On 9 September 1976
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invaluable in that it was devised a
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in deciding whether or not to appro
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3.8 As regards misrepresentation, t
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with the duty of disclosure unless
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confirmed by s 28 which requires th
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easonable proposer for a marine pol
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in the revised version of s 22 set
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4.23 The section is hardly a model
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elevant to the decision of the insu
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treated as misrepresentation if it
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therefore, an assured who uses a br
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the matter could be resolved by an
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here, in that there can be non-disc
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Cases other than fraud: damages 4.5
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elevant facts or the assured’s mi
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and investment policies with surren
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developed has raised exactly the sa
Page 44 and 45: Co-assureds 4.68 English law draws
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Page 48 and 49: utmost good faith. 218 The remedy i
Page 50 and 51: purpose, 232 proof of honesty is no
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Page 72 and 73: 7.20 Treasury Review I, 2003, found
Page 74 and 75: Continuing obligations in marine in
Page 76 and 77: contributed to by the illegality an
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Page 90 and 91: 8.21 Finally, s 68 seeks to protect
Page 92 and 93: also include an address and telepho
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REFORMING INSURANCE LAW: - Law Commission

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