Insurance Contracts CP - Law Reform Commission

Professor Merkin‘s view 47 that there is nothing to suggest that insurance contracts should be treated any
differently to other contracts, but, in practice, the Commission is concerned that in certain kinds of
contract the freedom of the parties to renegotiate a contract are subject to commercial or other restraints
or factors that make an individualised bargaining model inappropriate. The 2008 Report itself recognised
that employment contracts involving a number of potential third party beneficiaries may present difficulties
in relation to assenting to the contract. 48
9.33 Specific issues may arise in the case of Group Insurance cover that is negotiated between an
employer and an insurer, perhaps either or both parties being represented by a broker. If contracting out
is permitted, that is, the parties are able to expressly stipulate that the contract is not to be enforceable by
a third party in his or her right, the benefits of this reform will be negated. Similarly, if the contract
provides for variation or termination rights in any third party rights may be short lived or diluted somewhat.
The view that an employer may enjoy the right to terminate or vary insurance benefits which are
essentially part of the employee‘s remuneration package, as a matter of private law, appears to be out of
kilter with general principles of employment law 49 and it may well be that additional difficulties may
present themselves should a trade union be involved in representing members. Could a trade union
afford the necessary assent; as the assent provision stands in the draft Bill appended to the 2008 Report
the answer would be in the negative as a union would not be ―another such third party.‖ Similarly issues
may arise as to whether a trade union‘s consent could be effective to bind other non-union employees?
H
Third Party Beneficiary – A definition?
9.34 One matter that perhaps needs to be addressed is whether a definition of third party
beneficiary is required. It should be recalled that the Life Assurance Act 1774 contained a requirement
that persons to benefit under the contract had to be named on the policy, this requirement being relaxed
in 1989 in Ireland in respect of group insurance beneficiaries. 50 This question has been considered in
other jurisdictions in the specific context of insurance contracts and a recent Australian proposed change
affords a useful precedent.
9.35 The Australian Treasury Review, and subsequent Bill 51 consider the question whether a
definition of third party beneficiary is necessary. Part 1 of Schedule 1 to the Insurance Contracts
Amendment Bill 2010 defines a third party beneficiary under a contract of insurance as:
―a person who is not a party to the contract but is specified or referred to in the contract,
whether by name or otherwise, as a person to whom the benefit of the insurance cover
provided by the contract extends.‖
9.36 The Commission provisionally recommends that a third party beneficiary under a contract of
insurance should be defined in legislation as a person who is not a party to the contract but is specified or
referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the
insurance cover provided by the contract extends.
I
The Australian General Insurance Provision as a Model?
9.37 Following on from the ALRC recommendations on general insurance law reform, the 1984
Insurance Contracts Actprovides, in section 48, the following provision, the marginal note being
―Entitlement of named persons to claim.‖ Section 48 provides:
47
48
49
50
51
Merkin, Reforming Insurance Law: is there a case for Reverse Transportation? (2006) paragraphs 8.49 to
8.51.
2008 Report, paras 3.39 to 3.42.
Generally requiring consensual variation or alteration of a contract.
Insurance Act 1989, section 26.
Insurance Contracts Amendment Bill 2010.
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