The Government has announced that unfair contract terms laws for insurance will be introduced into the Insurance Contracts Act 1984, based on the UCT regime that applies under the Australian Securities and Investments Commission Act 2001 (ASIC Act).
Draft legislation will be released for consultation in 2013.
The UCT regime will not apply to life insurance contracts at this stage.
The principles for extending unfair contract terms laws to general insurance contracts are:
- the regime will apply to consumer contracts that are standard form insurance contracts;
- it will be included as part of the duty of utmost good faith: if a term is found to be unfair, the insurer will be in breach of the duty of utmost good faith;
- the remedy available where a term is found to be unfair will be that the party may not rely on the term;
- in addition to the above remedy, a court may consider whether there is another more appropriate remedy;
- ASIC and consumers will both have the right to take action under UCT laws;
- ASIC will have the range of enforcement powers that are currently available to it to administer the UCT laws in the ASIC Act;
- the UCT regime will not apply to a term to the extent it defines the main subject matter of the contract, sets the upfront price payable under the contract or is a term required, or expressly permitted by a law of the Commonwealth or a State or Territory;
- the definition of an unfair term is that the term:
*would cause a significant imbalance in the parties rights and obligations under the contract;
*would cause detriment to a party if relied on;
*is not reasonably necessary to protect the legitimate interests of the party advantaged by the term. For the purposes of determining whether a term in an insurance contract is reasonably necessary to protect a legitimate interest, a term will be reasonably necessary if it reflects the underwriting risk accepted by the insurer. - the insurer will have the onus of proof that a term is reasonably necessary to protect their legitimate interests.
