Have your once-in-a-lifetime say on the reform of New Zealand’s insurance law before it is too late
Approximately 20 years ago, the New Zealand Law Commission recommended significant changes to New Zealand’s insurance law. Subsequently, the Commission recommended a wholesale repeal and re-write of the Life Insurance Act 1908. To date, neither has occurred. That is about to change.
In 2010, Parliament comprehensively addressed the regulation of insurers in New Zealand for the first time, by passing the Insurance (Prudential Supervision) Act 2010. Although Parliament has tinkered with insurance law several times during the last century, passing the Insurance Law Reform Acts 1977 and 1985, and the Insurance Intermediaries Act 1994, the English common-law has remained the bedrock of New Zealand’s insurance law up until now.
Australia moved away from many aspects of the English common-law when it passed the Insurance Contracts Act 1985. More recently, England and Wales followed suit with the Insurance Act 2015. Now it is New Zealand’s turn.
The Government has charged officials at MBIE with reviewing New Zealand’s current insurance law and making recommendations to the Government about the changes required. MBIE sought high-level consultation last year from the insurance industry.
Earlier this year, MBIE published a more detailed Options Paper setting out options for changing New Zealand’s insurance law, inviting submissions. You will find that options paper here.
Summary of the options
We set out a summary of MBIE’s options for reform and related questions to submitters below.
- Reform of the duty of disclosure for consumers
- Option 1 – Insurers can only rely on material facts gathered from consumers by asking questions in a proposal. Consumers have a duty to answer the questions truthfully.
- Option 2 – Consumers have a duty to only disclose material facts that a reasonable consumer would know to be relevant to a prudent underwriter.
- Option 3 – Life and health insurers must access consumers’ medical records in order to gather material facts about consumers’ health.
- Option 4 – Insurers have a statutory duty to warn consumers in writing about their disclosure obligations before entering into a policy with them.
- Option 5 – Insurers have a statutory duty to advise consumers if and when they will access material facts from a third party (e.g. claims history) and must state whether this satisfies the consumers’ duty in relation to that type of information.
- Reform of the duty of disclosure for businesses
- Option 1 – Businesses have a duty to only disclose what a reasonable person would know to be material facts, taking into account the circumstances and characteristics of the insured.
- Option 2 – Businesses have a duty to either disclose material facts that would influence a prudent underwriter (the same as at present), or to provide sufficient facts to put a prudent underwriter on notice that it should ask more questions. In addition, the facts that businesses know or ought to know are specified in detail, depending on the nature of the legal entity concerned.
- Option 3 – Insurers can only rely on material facts gathered from businesses by asking questions in a proposal. Businesses have a duty to answer the questions truthfully (same as Option 1 for consumers).
- Question 1 – Should the duty of disclosure for small businesses be the same as consumers, and if so, what should be the criteria for a small business?
- Question 2 – Should businesses be able to contract out of the duty of disclosure?
- Reform of the remedies for a breach of the duty of disclosure (consumer and business)
- Option 1 – The insurer can only avoid the contract if the breach is deliberate or reckless, and material to the insurer’s decision. If the breach is through ignorance or carelessness, the insurer has proportional remedies only based on how it would have underwritten the risk if it had known.
- Option 2 – The same as Option 1 above, but avoidance is limited to fraudulent breaches only.
- Option 3 – The insurer has proportional remedies only based on how it would have underwritten the risk. There is no avoidance based on fraudulent or deliberate/reckless conduct.
- Question 1 – Should there be no breach of the duty of disclosure when there is no connection between the undisclosed material fact and a subsequent claim?
- Question 2 – What should insurers’ rights be when a breach of the duty of disclosure is discovered before there is any claim – should any increase in premium or reduction in cover be applied retrospectively?
- Question 3 – Where avoidance is available and the insurer can recover previous claims, should this be constrained where the insured has used the claim payment in a bona fide way (e.g. spent the money on repairs) and cannot easily repay it?
- Question 4 – Should the existing law relating to misrepresentations in non-insurance contracts be expressly overridden by the proposed new laws for insurance contracts? At present, there is some doubt about which one prevails.
- Question 5 – Should the limitations contained in the Insurance Law Reform Act 1977 for an insurer avoiding a policy based on a misrepresentation be repealed and subsumed into the new duty of disclosure laws being proposed?
- Unfair Contract Terms
- Option 1 – Remove the insurance specific exemptions and tailor the generic exemptions so the intention behind the insurance specific exemptions comes clearly within the generic ones.
- Option 2 – Remove the insurance specific exemptions and leave the generic exemptions unchanged.
- Option 3 – Completely remove insurance contracts from the unfair contract terms provisions and rely instead on insurance conduct regulations to achieve the same outcome.
- Understanding and comparing policies
- Option 1 – Require insurers to draft their policy wordings in plain English.
- Option 2 – Require insurers to provide clear definitions for core policy terms.
- Option 3 – Require insurers to provide a summary of the cover with the policy wording.
- Option 4 – Require insurers to work with third party policy comparison websites.
- Option 5 – Require insurers to disclose key information with their products such as the complaints process, policy holder obligations etc.
- Miscellaneous issues
- Option 1 – Retain section 10 as is.
- Option 2 – Stipulate that intermediaries as defined are the agents of the insured, not the insurer.
- Option 3 – Impose a statutory obligation on all intermediaries to pass on material facts to insurers.
- Option 1 – Remove types of exclusions from the application of section 11 e.g. drivers under a certain age.
- Option 2 – Remove the application of the exclusion if the excluded circumstance could not have increased the risk in the first place.
- Option 1 – Exclude the application of section 9 to claims-made policies.
- Option 1 – All third party claimants to claim direct against the liability insurer’s policy without the need for a statutory charge.
- Option 1 – Codify the duty as articulated in the earthquake case Young v Tower.
The Fair Trading Act 1986 prohibits unfair contract terms as defined. That definition exempts generic terms that apply to all contracts. In addition, there are a number of insurance contract specific exemptions. Consumer groups are critical of these and believe insurers are using them to decline claims. This is debatable. However, a number of the insurance specific exemptions arguably come within the generic exemptions anyway.
Section 10 of the Insurance Law Reform Act 1977
Section 11 of the Insurance Law Reform Act 1977
Section 9 of the Insurance Law Reform Act 1977
Section 9 of the Law Reform Act 1936
Duty of utmost good faith
Even if you are only interested in some of these reforms, we encourage you to make a submission. The closing date for submissions is 28 June 2019. Given the infrequency with which insurance law is reformed, for most of us this will probably be a once-in-a- lifetime opportunity to have your say!
Please feel free to contact us if you require any further information.