Background
In 2022, MBIE consulted on an exposure draft of the Insurance Contracts Bill, which reflected policy decisions made by the previous Cabinet. The Bill received input from a wide range of industry participants and consumer representatives, with 46 written submissions.
Most submitters welcomed the overall approach taken in the exposure draft, which proposed to consolidate, modernise and clarify a number of outdated statutes into one primary statute governing insurance policies generally, as well as the specific relationship between insurers and their customers. The Bill also proposed to bring about significant changes in the law of insurance in New Zealand – particularly relating to the duty of disclosure owed by insureds, the duty of utmost good faith, the remedies available to a party who has a claim against an insolvent insured, and the application of the unfair contract terms regime to insurance policies. The details of some of these substantive changes were met with resistance, including in our submission, primarily due to concerns that the reforms may create significant uncertainty for both insureds and insurers.
The consultation closed without a bill being introduced to Parliament. However, last month, the Insurance Contracts Bill was one of the lucky bills drawn out of what is literally an old biscuit tin under Parliament’s ballot programme for Members’ Bills.
Key changes in new Bill
The new Bill has a number of key differences from the version that MBIE consulted on. However, participants in the insurance industry may be surprised to see that concerns expressed in their submissions about the workability and lack of clarity in some of the draft Bill’s provisions have not been addressed. Many of the changes that have been made appear to be directed at further strengthening consumer rights.
These include the following:
- Additional purpose: The purposes of the Bill now include protection of the interests of consumers under insurance contacts. This focus on consumers is in addition to the existing purpose that provisions in insurance policies and the practices of insurers in relation to those policies, operate fairly. It is interesting the Bill is being given this focus when there is already conduct legislation and general consumer legislation, and it is reflected in many of the changes made to the exposure draft.
- Codification of the duty of utmost good faith: The Bill now provides that the duty of utmost good faith includes a duty on an insurer to accept (or reject), assess, and settle a claim within a reasonable period of time. This is consistent with the current state of the case law on the scope of the duty (which is itself not settled), but the Bill does not provide any clarity on what else the duty might include.
- Interest on claims: A new obligation would be imposed on an insurer to pay interest on sums the insured is entitled to under the policy, starting on the day that “it becomes unreasonable for the insurer to withhold payment”. This appears to be the corollary to the requirement to pay claims within a reasonable time. The Bill further provides a default rule that it is unreasonable to withhold payment beyond 12 months after the date on which the claim was made, unless it is reasonable to withhold payment in the circumstances.
- No misrepresentation where a fact is not material: The Bill would make major changes to the insured’s duty of disclosure by (among other things) replacing the onus on consumers to disclose all material facts with a duty not to make a misrepresentation. A new clause has been added to the Bill which states that a policyholder must not be taken to have made a misrepresentation where the insurer was not misled by the consumer, or the misrepresentation did not affect the underwriting decision of the insurer. It is not clear why this change was necessary or how it is intended to change the operation of the duty, given that an insurer would not have a remedy anyway unless they could prove that they would not have entered into the contract at all, or would only have done so on different terms.
- Clarification of remedies for breach of duty in relation to life insurance policies: the Bill now provides that, if there is a misrepresentation by the insured under a life insurance policy, the insurer must still provide the cover a reasonable insurer would have provided had the true position been known, unless the representation was fraudulent, or the representation was made within three years before the date on which the policy is sought to be avoided or the death of the life insured.
- Unfair contract terms: The exposure draft of the Bill provided two options for opening insurance policies up to the unfair contract terms regime in the Fair Trading Act 1986:
- “Option A” would mean that the regime applies to all terms of a policy other than those that define the subject matter of the contract (i.e., the thing being insured) and terms setting the sum insured and excess/deductible. This would mean that, for example, exclusion clauses in a policy could be subject to the regime.
- “Option B” would mean that the regime applies to a narrower range of policy terms (e.g., it would not apply to exclusion clauses or other terms that define the risk accepted by the insurer).
The Member’s Bill has adopted “Option A”, bringing a broader set of terms into the scope of the unfair contract terms regime.
- Interest payable on life insurance contract claims: The exposure draft of the Bill would retain the current position under the Life Insurance Act 1908 that if a death claim under a life policy is not paid within a specified period after the death of the person insured, the insurer is liable to pay interest from the 91st day until the claim is paid. However, the new Bill reduces this period to 30 days after the death of the person insured, with liability to pay interest now arising from the 31st day.
Next steps
The Bill is now on a waiting list for its first reading. It is currently unclear whether it will remain as a Member’s Bill, be adopted by the new coalition Government as part of its own legislative agenda, or be replaced by the Government’s own version of the Insurance Contracts Bill (which we understand was being considered before the Member’s Bill arrived on the scene).
If the Member’s Bill does pass its first reading in its current form, there should be a further opportunity to put forward submissions on the Bill. The new government will not be bound by the 2019 Cabinet Policy decisions which inform the current version of the Bill.
If you would like further background on the development of the Insurance Contracts Bill, please refer to our previous articles:
- Bell Gully submission on the draft Insurance Contracts Bill
- MBIE seeks submissions on insurance contract law reform bill
- Government announces decisions on insurance law reform
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.