The Bill will bring about significant changes in the law of insurance in New Zealand. Many of those changes are welcome; they will consolidate and clarify a number of outdated statutes, and modernise important principles. However, other changes are potentially problematic and have the potential to create significant uncertainty, to the detriment of both insurers and insureds. Our previous updates on the reform can be found here and here.
The Government has already made decisions on most of the key policy issues, and as a result the scope of the consultation is largely directed towards assessing whether the proposed drafting of the Bill achieves its intended effect and is workable in practice.
We recently filed our submission. We agree with certain aspects of the Bill, including the fact that it would repeal section 9 of the Law Reform Act 1936 and create a new right of action for third parties. The existing position is inconsistent with overseas jurisdictions and puts overseas insurers at a competitive advantage to New Zealand insurers.
However, we also identified some potentially problematic issues:
- Duties of disclosure: The new duty on consumers not to make a misrepresentation is a fundamental shift from the duty that currently applies at common law, and puts insurers at a disadvantage when compared to contracting parties more generally. This is because as a matter of general contract law, a person can be liable for an innocent misrepresentation, but as a matter of insurance contract law, a person cannot be liable for such a misrepresentation. We remain concerned about this inconsistency.
- Remedies for non-life policies: The remedial provisions for breach of the duties of disclosure are central to the Bill. They place insurers at a disadvantage when compared to the general law relating to misrepresentations (e.g. the Bill excludes any damages remedy), which is of particular concern given that the new duty already tips the balance significantly in favour of consumer policyholders. We have submitted that they be changed.
- Insurers’ duty to inform: The Bill provides that an insurer has no remedy for a policyholder’s breach of the duty of disclosure if the insurer breached its own duty to inform. There is an exception if the policyholder knowingly breached their duty. We consider that an insurer should also have a remedy if the policyholder commits a reckless breach of duty.
- Duty of utmost good faith: The Bill codifies the duty of utmost good faith. We consider that the drafting is more likely to confuse than to clarify the existing common law position. We submit that it should be removed or, if that is not possible, it should be amended to make it clear that it is confirming that the common law duty continues to apply, and that it is not creating any greater or broader duty.
- Unfair contract terms: We consider that the insurance-specific exceptions to the unfair contract terms provisions in the Fair Trading Act 1986 should remain. The evidence base for change is weak, and MBIE’s own assessment of the proposed options for reform is that they are no better than the status quo.
- Regulations as to form and content of policies: We consider that the proposed regulation-making powers relating to the form and content of policies are overly-prescriptive. We expect that they will create major difficulties and costs for insurers to implement, for little (if any) benefit. We have submitted that they should be recast at a higher level of generality.
A copy of our submission is here.
MBIE will use the information provided in submissions to inform the development of the Bill and its advice to Ministers, then the Bill will be introduced to Parliament.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.