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Peter Stockdale  
Partner
T +61 2 9296 2330

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Philip Ward  
Partner
T +61 2 9296 2213

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Brisbane
Justin McDonnell  
Consider whether the issues and developments referred to in this publication may impact on your business. We can help.

Canberra
John Topfer  
Consider whether the issues and developments referred to in this publication may impact on your business. We can help.

Hong Kong
Stuart Valentine  (萬思陶)
Consider whether the issues and developments referred to in this publication may impact on your business. We can help.

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Despite hopes for a Spring 2008 tabling of the bill effecting reforms to the Insurance Contracts Act 1984(Cth) (the Act), this may not occur until the beginning of 2009.

The exposure draft of the long awaited bill has been the subject of consideration and revision following the receipt of public submissions in March 2007 on the draft reform package that incorporated most of the recommendations provided by the Review Panel, appointed in 2003 to improve the overall operation of the Act.

The draft reform package was released in February 2007 and comprised a draft bill, draft regulations, explanatory materials and a draft regulation impact statement. In accordance with the findings of the Review Panel, the purpose of the proposed reforms is to update the Act, respond to market developments, clarify provisions in light of judicial interpretation and address anomalies in the operation of the Act.

A significant impact of the reforms proposed concerns interested third parties to an insurance policy. It is proposed that:

• a duty of good faith be imposed on insurers’ dealings with interested third parties
• the insurer and interested third parties will have to disclose matters that are likely to affect a decision to cover a risk and issues that may give rise to a claim on the policy
• an insurer has a right of subrogation with respect to payments it makes to interested third parties, and
• additional remedies are granted to an insurer for misrepresentation and non-disclosure.

Importantly, if these amendments are passed by Parliament, the existence of interested third parties could impact upon the premium charged for the policy if their inclusion alters the risk profile of the policy.

Significant changes are proposed in relation to “claims made” policies of insurance. (These usually include professional indemnity, D&O cover and similar policies.) The changes enable an insurer to decline a claim where there has been late notification of circumstances without the need to prove that they were prejudiced by the late notification. To offset this risk, an additional 28 days after the expiry of the policy period is granted for notifying facts that might give rise to a claim.

Important changes are also proposed in relation to remedies for non-disclosure and misrepresentation available for contracts of life insurance (death or contracts that contain a surrender value). The changes permit insurers to decline cover for a misrepresentation only where that misrepresentation would have affected their decision to enter the particular policy. The reforms will mean that Insurers will be able to recalculate the expiry date and premiums due if a date of birth has been incorrectly stated.

Some of the Review Panel’s suggestions, including updating the standard cover regulations and collection of data on claims by innocent co-insureds, are being progressed separately from the reform package.

Once passed, this Bill will affect all new insurance contracts and policy renewals bought in the Australian market and any primary insurance policies bought offshore. It may apply to variations, extensions or reinstatements.

Regardless of whether the bill is tabled in the Spring session or not until 2009, there is some indication that the government is aiming for a commencement date of 1 July 2009.