Changes to the Duty of Disclosure
The duty of disclosure under the Insurance Contracts Act 1984 (ICA) is changing.
Under the current law, an insured is required to disclose matters known to the insured that are relevant to the insurer’s decision of whether to accept the risk of insurance and, if so, on what terms.
The Financial Services Royal Commission concluded that the current approach to disclosure is no longer appropriate for modern consumer insurance contracts as it does not adequately safeguard consumers from having claims denied when they have inadvertently failed to disclose information, because the insurer did not ask the right questions. “Consumer insurance contracts” are insurance contracts obtained for the personal, domestic or household purposes of the insured – such as Home and Contents Insurance and Motor Vehicle Insurance.
For consumer insurance contracts, the existing duty of disclosure will be replaced with a new duty to take reasonable care to not make a misrepresentation to an insurer. As now, the new duty applies before the relevant contract of insurance is entered into.
Whether an insured has taken reasonable care to not make a misrepresentation will be determined with regard to all of the relevant circumstances, and there is no limitation on the circumstances that can be considered. However, the ICA identifies a number of matters that may be taken into account to determine whether or not an insured has breached the new duty. Those matters are:
1. the type of consumer insurance contract in question and its target audience;
2. explanatory material or publicity produced or authorised by the insurer;
3. how clear, and how specific, any questions asked by the insurer of the insured were;
4. how clearly the insurer communicated to the insured the importance of answering those questions and the possible consequences of failing to do so;
5. whether or not an agent was acting for the insured;
6. whether the contract was a new contract or was being renewed, extended, varied or reinstated.
Also, if an insurer was, or should have been, aware of particular characteristics or circumstances of the insured, those characteristics or circumstances are also to be taken into account to determine whether an insured has breached the new duty.
The insured is not to be taken to have made a misrepresentation merely because the insured failed to answer a question or gave an obviously incomplete or irrelevant answer to a question.
A misrepresentation made fraudulently is taken to be a breach of the new duty.
The existing remedies for non-disclosure and misrepresentation under the ICA will continue to be available to an insurer if an insured breaches the new duty.
The changes to the ICA will apply to insurance contracts entered into on or after 5 October 2021.