Unfair Contract Terms Legislation and Insurance Contracts

The National Insurance Brokers Association (NIBA) has been advised its members that the government’s commitment to apply Unfair Contract Terms (UCT) legislation to insurance contracts has not been deferred as a result of COVID-19 challenges.

Legislation to make this happen was passed by the Parliament in February 2020, and the legislation will take effect in April 2021.

UCT allows unfair contract terms to be removed from a contract and the remainder of the contract to stay in place. This legislation has been available for a number of commercial contracts for some time now, but it is only now being applied to insurance contracts.

This legislation is relevant for insurance brokers for two reasons:

  1. If a provision in an insurance contract is unfair for the client, and the UCT provisions are satisfied, the unfair term might be able to be removed from the insurance policy.
  2. If an insurance broking firm uses its own policy wordings for insurance policies covered by the UCT legislation, they will need to be reviewed to make sure there are no unfair terms in the policy wordings.

There are a number of important concepts that insurance brokers will need to become familiar with. These include –

  • The insurance policy must be a consumer contract or a small business contract – both of these terms are defined;
  • The insurance policy must be a standard form contract;
  • The contract must be a financial product, and this includes insurance policies;
  • The provision in the contract must satisfy the concept of an unfair contract term as set out in the legislation;
  • The “main subject matter” of the insurance policy cannot be declared to be an unfair term.

NIBA CEO, Dallas Booth said, “As noted above, insurance brokers who offer their own policy wordings for consumer and small business contracts (as defined in the UCT legislation) will need to carefully review those policy wordings to ensure they do not contain any provisions which might be regarded as unfair.”

“We also believe it will be important for insurance brokers to have a good understanding of the UCT concepts and legislation, in case an unfair contract term is operating to a client’s detriment.”

NIBA’s legal adviser Mark Radford has prepared a detailed background paper which explains these concepts, it is available here for your ongoing reference.

Booth said, “We emphasise that implementation of this reform has not been deferred by the Federal Government, and the new provisions will take effect in April 2021 and we recommend all insurance brokers familiarise themselves with these reforms.”