Consultation Open for Insurance Contracts Bill
On February 24, the Government released an exposure draft of the proposed Insurance Contracts Bill (“the Bill”) and an accompanying consultation paper, and is now seeking feedback on the details. The Bill is intended to rationalise New Zealand’s various insurance statutes into one, and to modernise the law in line with other jurisdictions. The proposed Bill contains a number of major changes which would significantly impact on all NZ insurers and intermediaries, so it would be a good idea for any affected business to make a submission. Here we outline some of the most important changes the Bill proposes on which you may wish to submit feedback.
The Bill would replace the current policyholder’s disclosure duty, which is to “disclose all material information”, with new distinct duties for consumer and non-consumer contracts. For consumer insurance contracts, policyholders would be required to “take reasonable care not to make a misrepresentation”, which effectively means that they must answer an insurer’s questions truthfully and accurately. For non-consumer insurance contracts, policyholders would be required to make “fair presentation of the risk”.
The Bill would restrict when insurers can avoid insurance contracts where policyholders breach their disclosure duties. Rather than being able to avoid contracts entirely for “substantially incorrect” and material misrepresentations, insurers would have prescribed “proportionate” remedies depending on how the insurer would have responded had the disclosure duty not been breached or whether the breach was deliberate or reckless. For life policies, these remedies would only be available if the breach occurred within 3 years of the earlier of the date on which the contract is sought to be avoided or the death of the insured.
The existing exceptions of standard form insurance contracts from the unfair contract terms provisions of the Fair Trading Act 1986 would be removed. However, the general exception of terms which define the main subject matter of the contract will be clarified for specifically insurance contracts, and feedback is being sought on two possible options. See the draft and consultation paper for more details.
The Bill would also make some significant changes to terms of insurance contracts. It includes a list of specified increased risk exclusion breaches, which insurers can apply without considering whether the breach caused or contributed to the loss. It will also repeal and replace the existing regime governing third party claims for liability insurance money, no longer placing statutory charges over the insurance proceeds and allowing third parties to pursue claims directly against the insurer, who will stand in the place of the policyholder.
Submissions on the Bill close on 4 May 2022. If you would like assistance in preparing your submission, please contact us.