Insurance Contracts CP - Law Reform Commission

(1) ―Where a person who is not party to a contract of general insurance is specified or
referred to in the contract, whether by name or otherwise, as a person to whom the
insurance cover provided by the contract extends, that person has a right to recover the
amount of the person‘s loss from the insurer in accordance with the contract
notwithstanding that the person is not a party to the contract.
(2) Subject to the contract, a person who has such a right:
(a) has, in relation to the person‘s claim, the same obligations to the insurer as the
person would have if the person were the insured; and
(b) may discharge the insured‘s obligations in relation to the loss.
(3) The insurer has the same defences to an action under this section as the insurer would
have in an action by the insured. 52 ‖
9.38 Section 48(1) states that the third party entitlement is determined by the contract. Section
48(2) subjects the third party to the same obligations as those imposed on the insured such as observing
the duty of utmost good faith and giving the insurer notice on any loss, such notice being effective in
discharging the insurer‘s obligations under the contract. Section 48(3) makes the same defences as
would have operated against the insured available to the insurer as against the third party.
9.39 Professor Merkin points out 53 that section 48, unlike the 1999 legislation, cannot be the subject
of contracting out and he states that because section 48 has been loosely drafted, it has produced a
significant amount of litigation. However, Professor Merkin, after noting that the 1999 legislation in
England and Wales has proved ineffective because policies in virtually all cases exclude the 1999 Act,
goes on to remark that ―the Law Commissions will plainly not contemplate adopting a similar [measure to
section 48] given that the English 1999 Act is a far clearer piece of legislation.‖ 54
9.40 In the Commission‘s view the choice presented by the English 1999 legislation and section 48
of the 1984 legislation is rather an unhappy one. The general English model threatens to be ineffective
by virtue of a contracting out provision while the specific Australian insurance precedent may be too
inflexible and uncertain. In the final analysis the Commission believes that the solution to general privity
problems in insurance law lie in the general privity reform proposal in our 2008 Report. The Commission
cannot see, in principle, why insurance contracts should be treated any differently to other contracts and
the Commission believes that the 2008 Report contains a balanced solution to difficult questions of law
and social policy.
9.41 The Commission provisionally recommends that, in the context of third party rights in insurance
contracts, it would, in general, be sufficient to protect such rights if the Oireachtas enacted legislation
based on the draft Contract Law (Privity of Contract and Third Party Rights) Bill in the Commission‟s 2008
Report on Privity of Contract and Third Party Rights. In addition, the Commission invites submissions as
to whether additional specific provisions should be enacted in the context of the operation of insurance
contracts in specific settings for example, in insolvency, on the death of an insured person and during the
completion of a contract for the conveyance of land.
J The Australian Treasury Review and Section 48
9.42 Section 48(1) of the 1984 Australian legislation is currently under review in order to clarify the
rights of a third party beneficiary. Schedule 6 of the Insurance Contracts Amendment Bill 2010 proposes
to amend section 48(1) so as to read:
52
53
54
While section 48 deals with general insurance separate provision has been made in respect of ordinary life
policies and policies connected to retirement savings account.
Merkin, In Reforming Insurance Contract Law: Is there a case for reverse transportation? (2006)
Para 8.49.
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