Submissions on the government's review of key aspects of New Zealand's
insurance law close on 13 July 2018. The review follows two reports by the Law Commission, in 1998 and 2004, further proposals for reform in 2008, and reforms in both the United Kingdom and Australia.
The Ministry of Business, Innovation and Employment (MBIE) is seeking submissions on the following topics.
1. Disclosure obligations
Under existing law, insureds are required to disclose all material information that could affect the insurer's assessment of risk, even if the insurer does not ask for that information to be disclosed. A failure to disclose allows the insurer to avoid the policy. In Australia and the United Kingdom, by contrast, insurers are required to prompt insureds with specific questions, and cannot avoid the policy unless the insured acts deliberately or recklessly.
MBIE has asked whether insureds are aware of their duty to disclose, whether they understand the consequences of a breach, and whether the remedy for a breach should be more proportionate.
2. Supervision of insurers and brokers
MBIE has raised questions about oversight of insurers' and brokers' conduct during the "full insurance policy lifecycle". It has asked whether there is a gap in regulation and has asked if there are any issues with insurers' and brokers' conduct.
3. Unfair contract terms
The unfair contract terms legislation contains a list of specific terms in insurance contracts that cannot be declared unfair, including the sum insured, the exclusion of liability, the basis of settling a claim, the payment of premiums, and the requirements for disclosure.
MBIE has asked whether these exceptions are of concern to insureds, whether they are needed to protect the interest of insurers, and what the effect would be of removing the exclusion.
4. Comparing policies
MBIE has asked whether insureds have difficulties in finding, understanding and comparing information on insurance policies and premiums. It has asked whether the current level of information allows consumers to make informed decisions, and whether the government should make it easier for consumers to access insurance information to make informed decisions when entering into or switching insurance contracts.
5. Third party access to liability insurance monies
Following the Supreme Court's
Steigrad decision (Supreme Court overturns Steigrad decision on directors' defence costs), section 9 of the Law Reform Act 1936 allows a third party to claim a priority charge over insurance moneys payable under policies with a single indemnity for both third party liability and defence costs.
MBIE has raised several questions in relation to the operation of section 9, including how the charge operates where a policy covers both liability and defence cost up to a combined limit, prioritising multiple charges where claims arise on the same day, and whether a time limit should apply to a third party's claim against an insurer.
6. Failure to notify claims within time limits
MBIE is considering the law concerning a failure to notify a claim in time. Section 9 of the Insurance Law Reform Act 1977 provides that an insurer can only decline a claim made outside the policy time limit if this failure prejudices the insurer.
There is an issue as to how this section applies in the context of claims made liability insurance policies. The purpose of a claims made policy is to allow an insurer to estimate risks based on claims and circumstances that are notified during the policy term. MBIE is seeking submissions as to whether section 9 is causing problems for claims made policies in New Zealand, and options to address this issue.
7. Exclusions that have no causal link to loss
Section 11 of the Insurance Law Reform Act 1977 provides that an insurer cannot decline a claim based on a policy exclusion if the claim was not caused or contributed to by the excluded event. The Law Commission proposed to remove certain types of exclusions relating to vehicle insurance from the operation of section 11.
MBIE has indicated that there may be an issue with how section 11 operates. An excluded event may give rise to a greater statistical likelihood of loss even if it did not cause the loss. It has asked whether the operation of section 11 is problematic, whether the Law Commission's proposal should be adopted, and whether there are other options that should be considered.
8. Registration of assignment of life insurance policies
Part 2 of the Life Insurance Act 1908 allows interests in life insurance policies to be assigned as security to third parties such as lenders.
MBIE is considering whether this regime is out-of-date given that it requires paper policy documents to be sent to the insurer for registration, with the document to be held physically by the assignee.
9. Responsibility for intermediaries' actions
The Insurance Law Reform 1977 provides that an insurance intermediary (such as a broker) who receives commission or other consideration is considered the agent of the insurer, with the insurer bearing responsibility for the actions of the intermediary.
MBIE has raised several questions, including whether an insurer should bear full responsibility for an intermediary's failures. It has asked for examples as to whether this regime has caused problems and what options should be considered to address them.
10. Deferral of payment by insurance intermediaries
Under the Insurance Intermediaries Act 1994, insurance intermediaries are entitled to defer payment of premiums to insurers for a default period of 50 days. In the interim, an insurer is liable for the Fire Service Levy, GST and any relevant reinsurance premiums before receiving payment of the premium from the intermediary.
MBIE is seeking comments on whether this current position has caused problems, and if so how they should be addressed.
11. Consolidation of insurance law
Insurance law in New Zealand is currently regulated by six pieces of insurance legislation.1
MBIE has asked whether these Acts should be consolidated or amended, whether there are elements in the common law that would be useful to codify, and whether there are other areas of law where the interface with insurance law should be considered.
Bell Gully will continue to monitor the progress of the review. If you would like assistance with making submissions, please contact us or your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.