Public Consultation Commences For Insurance Contracts Amendment (Unfair Terms) Bill 2013

The Assistant Treasurer has released an Exposure Draft of the Insurance Contracts Amendment (Unfair Terms) Bill 2013 (the Bill). The closing date for public consultation is 31 May 2013.

As foreshadowed in our March 2013 client update, the proposed unfair contract terms regime for insurance contracts will be based on the unfair contract terms regime that currently applies under the Australian Securities and Investments Act 2001 (ASIC Act) to most other, non-insurance financial products and services. Under the draft legislation the Insurance Contracts Act 1984 (the ICA) would be amended to apply, with slight modifications, the unfair contract terms regime provisions from the ASIC Act to standard form consumer contracts of general insurance.

Proposed unfair contract terms regime

Section 15 of the ICA currently excludes insurance contracts from the operation of any other Act (Commonwealth, State or Territory) that provides relief in the form of judicial review of, amongst other things, unfair contracts. Significantly this provision currently excludes the operation of subdivision BA of the ASIC Act which governs unfair contract terms in standard form consumer contracts. The proposed Bill would insert a new subsection 15(3) to the ICA as follows:

"...certain standard form consumer contracts of general insurance are capable of being made the subject of relief under the applied enforcement provisions of the ASIC Act."

This would operate as an exception to section 15 of the ICA, with the effect that a standard form consumer contract of general insurance will now be capable of being made the subject of relief under the enforcement provisions of the ASIC Act applied, as modified under the ICA. Either a party to a contract or ASIC may bring a claim for relief under the proposed regime.

Standard form consumer contract of general insurance

The Exposure Draft legislation provides that a standard form consumer contract of general insurance is a consumer contract that is a standard form contract and a contract of general insurance. The regime will not apply to a contract of life insurance1. A consumer contract is defined in the Exposure Draft Bill as:

"a contract at least one of the parties to which is an individual whose acquisition of what is supplied under the contract is wholly or predominantly an acquisition for personal, domestic or household use or consumption."2

A contract of general insurance will be presumed to be a standard form contract unless...