Insurance Contracts CP - Law Reform Commission

―A third party beneficiary under a contract of general insurance 55 has a right to recover from the
insurer, in accordance with the contract, the amount of any loss suffered by the third party
beneficiary even though the third party beneficiary is not a party to the contract.‖
9.43 As previously stated, section 48 is not capable of being excluded by contract. The Australian
approach, under both the 1982 Report and the 1984 Act, approximated the rights of non contracting
parties to those of the insured. Schedule 6 of the 2010 Bill seeks to carry this process further by allowing
the third party beneficiary to enjoy rights to information from the insurer on a par with rights currently
enjoyed by the insured. This should be seen in the context of the proposed amendments to section 13 of
the 1984 Act. It is proposed 56 that the post contractual duty of good faith is to be extended to third party
beneficiaries vis-a-vis the processing of claims, that failure to comply with the duty is to be regarded as a
breach of the Act, thus triggering a new power in the financial regulator to bring a representative action in
cases of systemic failure. 57 There is a case to be made for providing for greater information rights in
isolation from these questions of wider enforcement powers. For present purposes however, the
extension of section 48 of the 1984 Act, so as to become applicable to third party beneficiaries, is
intended to dissuade an insurance company from dilatory processing of claims where payment is to
benefit a person other than the insured. Adjustments to section 48(2)(a) and 48(3) also copper-fasten the
rights of the third party beneficiary with those of the insured, as well as exposing the third party
beneficiary to whatever defences would have been available if the claim had been brought by the insured.
In the Treasury Review and the discussion of third party rights issues it was said that, because the 1984
Act did not provide a comprehensive answer to third party rights issues by extending all rights an
obligations of insureds under the 1984 Act to specified third party beneficiaries, uncertainly was
engendered which ―ultimately leads to higher risk premiums being charged in relation to the affected
policies and also results in outcomes that may be anomalous or inconsistent.‖ 58 Rather than going down
the path of extending all of the provisions in the 1984 Act to third party beneficiaries the Treasury Review
took a via media between total approximation of rights and doing nothing. The Review concluded that
extension of all rights to third parties might resolve issues of third party uncertainty whilst adding
significant administrative costs in the form of third party notice requirements.
9.44 The preferred option was summarised thus:
This option would treat specified third party beneficiaries as insureds under the Insurance
Contracts Act only for the purposes of:
subrogation, in that the insurer would be able to substitute for the third party
beneficiary in an action against a third party who is liable for a loss that has been
paid by the insurer;
the duty of utmost good faith (but not pre-contractually); and
circumstances where Insurance Contracts Act allows an insured to request the
insurer provide them with particular information by way of written notice. 59
K
The Australian Insurance Contracts Amendment Bill 2010 – Breach of the Duty of Good
Faith and Third Parties
9.45 Following upon a protracted process of review, a number of changes to the Insurance
Contracts Act 1984 have been suggested in order to, inter alia, enhance the rights of third party
beneficiaries.
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Effectively non life insurance. Part 2 of Schedule 6 applies to general insurance: similar adjustments for life
insurance are made in Part 3 of Schedule 6.
Part 1(4) of Schedule.
Proposed section 14A.
Regulation Impact Statement to Insurance Contracts Amendment Bill 2010, para 3.144.
Regulation Impact Statement to Insurance Contracts Amendment Bill 2010, para 3.149.
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