Since 2010, Australia has had laws dealing with unfair contract terms (UCT Laws) in consumer contracts. These are contained in sections 23 to 28 of the Competition and Consumer Act 2010 (ACL) and, in respect of financial products and services, sections 12BF to 12BM of the Australian Securities and Investment Commission Act 2001 (ASIC Act). From 12 November 2016, the scope of the UCT Laws was extended to âsmall business contractsâ (a small business is one that employs less than 20 people, including casual employees employed on a regular and systematic basis).
The UCT Laws do not apply to insurance contracts because section 15 of the Insurance Contracts Act 1984 (IC Act) states that a contract of insurance is not capable of being made the subject of relief under any other Act, or a State Act, or an Act or Ordinance of a Territory. However, the Government announced in December 2017 that it would extend the UCT Laws to apply to contracts of insurance in 2018.
The Federal Government has finally released a Proposals Paper in respect of the proposed extension of the UCT laws. The proposed model involves amending section 15 of the IC Act to allow the UCT Laws in the ASIC Act to apply to insurance contracts regulated by the IC Act (ie, general and life insurance contracts). It would also involve tailoring the UCT Laws in the ASIC Act to accommodate specific features of insurance contracts. In particular, this would mean:
There has been significant discussion in the industry around these two points in particular, given the unfair contracts provisions in the ASIC Act do not apply to a term of a contract to the extent that the term defines the âmain subject matterâ of the contract, or sets the âupfront priceâ payable under the contract. For this reason, insurers want the main subject matter of an insurance contract to be defined broadly (to prevent the UCT Laws covering too many of the fundamental terms of the insurance contract), and the âupfront priceâ to also be defined broadly (ie, to ensure terms relating to payment of additional premiums, and fees and charges, are not subject to the UCT Laws).
The application of the proposed model to insurance contracts would also mean that:
The UCT Laws have had a significant impact on other providers of financial services that use standard form contracts, particularly the banks, which have had to make changes to fundamental contractual terms relating to default, breach and indemnity. It is likely that retail insurance policy documents will also need a similar overhaul to comply with the proposed model for applying the UCT Laws to insurance.