Insurance Contracts CP - Law Reform Commission

(10) Australia
3.88 In ALRC Report No. 20, Insurance Contracts, 111 the Australian Law Reform Commission
examined misrepresentation and non disclosure together and concluded that the duty of disclosure
required modification on the basis that while the duty can require proposers to reveal facts which, as a
reasonable man, the proposer should appreciate as being relevant, the duty may also require disclosure
of facts of whose relevance the proposer is rightly ignorant. The ALRC was tempted to suggest that the
duty should be re-cast as a duty not to conceal a material fact, avoidance not being avoidable for
innocent non disclosure. A residual duty of disclosure was to be balanced by a shift to the ―reasonable
insured‖ standard, with a duty being placed on the proposer to give the proposer a clear and prominent
warning at the time when the proposal form is filled in. However, the ALRC felt that difficulties of proof
made a ―fraudulent concealment‖ standard impractical; the ALRC ultimately recommend that:
―the duty of disclosure should be retained in modified form. An insurer which wishes to rely on
innocent non-disclosure should warn the insured of his duty of disclosure before the contract is
entered into. The duty should itself extend to facts which the insured knew, or which a
reasonable person in the insured‘s circumstances would have known, to be relevant to the
insured‘s assessment of the risk.‖ 112
3.89 The Insurance Contracts Act 1984 sought to separate the (post contractual) duty of utmost
good faith from any pre-contractual obligations placed upon the proposer. Although Professor Merkin
comments that this boundary ―has given rise to some difficulty under the 1984 Act‖ 113 he summarises the
redacted duty of disclosure thus:
―As regards disclosure, the assured‘s duty of disclosure is retained by s.21, but is subject to
three significant restrictions: the test of materiality is no longer based on the prudent
underwriter but rather focuses on the prudent assured; under s.21A the duty of disclosure is
waived in respect of most forms of domestic policy unless the insurers have asked specific
questions; and under s.22 the insurers are under a duty to inform the assured of the duty of
disclosure, failing which they cannot rely on it unless the assured has been fraudulent.‖ 114
3.90 Any analysis of the duty of disclosure must take account of how the law reacts to noncompliance
and the 1984 legislation does this. The major changes to the provisions on remedies involve
an analysis of the state of mind of the proposer on completion of the proposal form. Absent fraud, the
insurer will in general be put in the position they would have been in had there been no breach of duty:
s.28. Pre contractual non disclosure and misrepresentation are normally addressed by reference to the
presence or absence of fraud particularly on the question whether the insurer can avoid the policy. Post
contractual breaches of the implied duty of good faith are answered by reference to contractual remedies.
(11) New Zealand
3.91 In contrast to Australia, the New Zealand provisions relating to non disclosure have been
somewhat tentative. Some of the provisions in the New Zealand 1977 reform legislation were
innovative, 115 but on the duty of disclosure the 1977 legislation was silent. The position in New Zealand is
a complex one because life insurance is regulated in a separate statute that goes back to 1908, and the
Insurance Law Reform Act 1977 must be seen in the context of innovative New Zealand contract law
statutes such as the Contractual Mistakes Act 1977 and the Contractual Remedies Act 1979, statutes that
have addressed many of the remedial shortcomings of the common law of contract. Because of the
closeness of the Australian and New Zealand insurance markets, the two post 1984 New Zealand Law
Commission Reports look closely at Australian reform measures, especially on disclosure.
111
112
113
114
115
ALRC Report No. 20, para. 175.
ALRC Report No. 20, para. 183.
Merkin, ―Reforming Insurance Contract Law: Is there a case for Reverse Transportation?‖ Para. 3.6.
Ibid,para. 3.7: Lewins, ―Reforming Non-Disclosure in Insurance Law: The Australian Experience‖ [2008] JBL
158.
Insurance Law Reform Act 1977 (eg sections 4 to 7 on misrepresentation).
85