[Draft] Insurance Contracts Amendment (Unfair Terms) Bill 2013

A new draft bill has been published, aimed at giving consumers greater protection against unfair contract terms in general insurance contracts. The [Draft] Insurance Contracts Amendment (Unfair Terms) Bill 2013 was opened for submissions on 10 May 2013, with submissions closing on 31 May. 

In a media release, Assistant Treasurer David Bradbury highlighted the need to give consumers protection against unfair contract terms in general insurance contracts.

"Australia's recent flood and fire disasters and extreme weather events highlight the need for consumers to have confidence that their insurance policy will not unfairly favour the insurer should a claim be made," Mr Bradbury said.

"These reforms will ensure that consumers will have the same protection from unfair contract terms in general insurance contracts as is available for consumers of other financial products and services."

The draft bill addresses this by inserting a new unfair contract terms regime into the Insurance Contracts Act 1984 (CTH). 

Under the proposed changes, an insurer will be found in breach of the duty of utmost good faith in the Insurance Contracts Act 1984 if they have an unfair term in a standard form consumer contract of general insurance. The insurer will not then be able to rely on the term.

A term will be deemed unfair if:

• it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;

• it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and 

• it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

However, a term will be “reasonably necessary” if it reflects the underwriting risk accepted by the insurer.

The draft legislation will apply to both standard form consumer contracts of general insurance entered into or renewed on commencement, and a term in a standard form consumer contract of general insurance that is varied on or after commencement.

Insurers will have 12 months to review their standard form consumer contracts for unfair terms before the commencement of the new regime.

Media release and Draft Legislation Details gained from TimeBase LawOne service.

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