Unfair terms protections extended to insurance contracts

Consumer Action Law Centre has welcomed the  announcement from Assistant Treasurer David Bradbury  that unfair contract term laws will be extended to general insurance contracts. Protections against unfair  terms have applied in all other consumer sectors nationally since 1 January 2011, and the decision to extend  protection to insurance represents a significant advance in national consumer protection.

“The need to extend unfair terms protections to all consumer products and services was first recognised by  the Productivity Commission back in 2008, and many expert inquiries have recommended extension of  protections to insurance, including a Senate Inquiry in 2010 and last year’s National Disaster Insurance  Review”, said Catriona Lowe, co-CEO of Consumer Action.

Following the devastating natural disasters that hit many Australians in early 2011, and the waive of  consumer disputes that followed, consumer groups developed a  twelve point plan to improve consumer  protection in insurance. One of the key protections sought was national unfair terms protections.

“Consumer advocates have campaigned for unfair terms protections to apply to insurance contracts for  some years. The benefit of an unfair terms law is that it encourages contract drafters to ensure terms are  balanced and reasonably necessary to protect the business—where terms are unfair, i consumers and the  regulators are may be able to challenge them”, said Ms Lowe.

“Too often we see exclusions in contract terms that mean claims are rejected when an insured event occurs.  For example, we’ve seen terms which place unreasonable burdens on those involved in motor vehicle  accidents to identify other parties at fault and that those parties are uninsured. This can be very difficult in  some circumstances—particularly if an at fault driver doesn’t cooperate—and can mean drivers not at fault  miss out on insurance claims.

“In a recent example a consumer bought caravan insurance that was labelled “fully comprehensive”. The fine  print stated that third party property damage would not be covered where the caravan was  attached to a  vehicle. This exclusion makes us wonder which incidents would be covered by a caravan insurance policy if  not those which occurred when the caravan is being towed”, said Ms Lowe. Consumer Action noted that the Minister’s announcement indicates that the new protections would be  implemented as amendments to the Insurance Contracts Act 1984, and the laws would be tailored to suit  insurance. “The proposal from the Government is quite balanced and recognises that insurance policies are regulated  by specific consumer protections”, said Ms Lowe. “We congratulate the Government on this reform and in  particular the recognition that any effective reform can apply to exclusion clauses.  These are often hidden in  complex product disclosure documents. While it is reasonable for the new protection not to allow  consumers to challenge the main subject matter of a contract, to be effective it must enable review of policy  exclusions and other fine print.”

Consumer Action said it looked forward to commenting on draft legislation to be released early next year. i Unfair terms are defined as those that cause an imbalance in the parties’ rights, are not reasonably necessary to  protect the business’ legitimate interests, and would cause detriment to a party if they were relied upon.