The Gillard Government will legislate to protect consumers from unfair terms in insurance contracts, said Assistant Treasurer David Bradbury.
For the first time, protections against unfair contract terms that are enshrined in Australia's consumer protection legislation will be extended to general insurance contracts, which have until now been excluded.
Unfair contract terms laws for insurance will be introduced into the Insurance Contracts Act 1984. While they are based on the provisions in the Australian Securities and Investments Commission Act 2001, the new provisions will take account of the unique features of insurance contracts.
"Consumers should not have to fight insurance claims with one hand tied behind their back because of unfair contract terms," said Mr Bradbury.
"These new protections will allow consumers, or the Australian Securities and Investments Commission (ASIC) as the regulator, to challenge a term in the courts.
"Consumers have long had concerns that some terms in insurance contracts are simply unfair and are used to dismiss otherwise valid claims.
"The worst nightmare for many people facing a traumatic moment in their lives is finding out they will not have their insurance claims paid because the fine print in a contract unfairly favours the insurance companies.
"Consumers deserve to know that insurance companies won't simply take their premiums and hide behind unfair terms to leave them high and dry when it comes time to pay out a claim.
"With these proposed changes, ASIC will have a range of enforcement powers to administer these new laws and if a term is found to be unfair, the insurer cannot rely on that term and the court may also order other remedies to help consumers.
"Under our existing consumer protection legislation, consumers are protected from unfair terms in consumer contracts for goods and services, like mobile phone contracts, credit cards and mortgages. The Gillard Government believes that consumers should be given the same protections against unfair terms in insurance contracts."
Mr Bradbury also thanked stakeholders for their input into the development of these proposals.
"These proposals are the result of extensive consultation with consumer advocates and the insurance industry and I would like to congratulate and thank them for their constructive contribution."
The new regime will provide for an adequate transition period, and will apply to all new and renewed insurance contracts entered into after commencement. Further consideration will be given to the application of unfair contract terms laws to life insurance contracts in the future.
Draft legislation will be released for consultation in 2013. The principles for extending unfair contract terms laws to general insurance contracts are attached.
Attachment
Principles for extending Unfair Contract Terms laws to general insurance contracts
Unfair contract terms (UCT) laws for insurance will be introduced into the Insurance Contracts Act 1984 (IC Act), based on the UCT regime that applies under the Australian Securities and Investments Commission Act 2001 (ASIC Act) and with the following elements which includes some tailoring for insurance:
- the regime will apply to consumer contracts that are standard form insurance contracts;
- it will be included as part of the duty of utmost good faith;
- that is, if a term is found to be unfair, the insurer will be in breach of the duty of utmost good faith;
- the remedy available where a term is found to be unfair will be that the party may not rely on the term;
- in addition to the above remedy, a court may consider whether there is another more appropriate remedy;
- ASIC and consumers will both have the right to take action under UCT laws;
- ASIC will have the range of enforcement powers that are currently available to it to administer the UCT laws in the ASIC Act replicated in the IC Act for the purposes of enforcing the UCT laws in the IC Act;
- the UCT regime will not apply to a term to the extent it:
- defines the main subject matter of the contract;
- sets the upfront price payable under the contract; or
- is a term required, or expressly permitted by a law of the Commonwealth or a State or Territory.
- the definition of an unfair term is that the term:
- would cause a significant imbalance in the parties rights and obligations under the contract;
- would cause detriment to a party if relied on;
- is not reasonably necessary to protect the legitimate interests of the party advantaged by the term. For the purposes of determining whether a term in an insurance contract is reasonably necessary to protect a legitimate interest, a term will be reasonably necessary if it reflects the underwriting risk accepted by the insurer.
- the insurer will have the onus of proof that a term is reasonably necessary to protect their legitimate interests; and
- the UCT regime will not apply to life insurance contracts at this stage.