2023 Insurance Law and Regulation Update
Join us as we examine pivotal 2023 reforms and court decisions that shaped the insurance industry’s legal landscape in Australia.
From key legal, regulatory and judicial impacts, here’s some key reforms and rulings that affected the insurance world in 2023.
March 2023
On 17 March 2023, the Full Court of the Federal Court of Australia handed down its decision in AIA Australia Ltd v Sharma [2023] FCAFC 42. It found that an incoming group life insurer can exercise the remedies available under section 29 of the Insurance Contracts Act 1984 (Cth) in respect of fraudulent misrepresentations made by a superannuation fund member when obtaining insurance cover from a prior group life insurer.
In this month, ASIC also released Report 760 Insurance in superannuation: Industry progress on delivering better outcomes for members which provides an update on the examination of progress made by superannuation trustees since 2019 in improving their arrangement for life insurance. The report notes that, in general, trustees have made changes to the insurance design and data, such that members get better value for money, taken steps to streamline claims handling processes, and improved the way insurance offerings are explained. Nonetheless, there is a need for improvement, in areas including data analysis, complaints handling and analysis, and communication of key terms and conditions to members.
April 2023
Reforms under the Motor Accident Injuries Amendment Act 2022 (NSW) came into effect on 1 April 2023. The noteworthy reform is that persons injured in a motor vehicle accident in NSW are now entitled to statutory benefits, irrespective of fault or injury threshold, of 52 weeks from the date of the accident. This is double the previous statutory benefit of 26 weeks. Other reforms included the alignment of liability of the Nominal Defendant in statutory benefits claims as common law, terminology changes when referring the Act from “minor injures” to “threshold injuries”, and a reduction of weekly payments for contributory negligence.
May 2023
ASIC commenced civil proceedings in the Federal Court alleging three types of insurance policies issued by HCF Life contained unfair contract terms and had the potential to mislead the public. The allegation relates to exclusions in respect of “pre-existing conditions” which may include sickness or disability that a reasonable person in the circumstance could not be expected to have been aware of at the time each policy was entered into. That is, according to ASIC, the term unfairly seeks to deny cover if a person did not disclose a pre-existing condition prior to entering the contract and that under section 47 of the Insurance Contracts Act 1984 (Cth), insurers are prevented from excluding coverage due to non-disclosure of a pre-existing condition if the customer was unaware of the condition when taking out the insurance. The case is listed for hearing in February 2024.
June 2023
On 30 June 2023, the Federal Court of Australia ruled on IAG’s pricing promises in Australian Securities and Investments Commission v Insurance Australia Limited, in the matter of Insurance Australia Limited (2023) FCA 724 IAL.
The judgment found the insurer to have made false or misleading representations to over 600,00 customers between March 2014 and September 2019, by failing to deliver the full amount of loyalty and no claims bonus discounts promised upon renewal of NRMA branded policies. This resulted in a fine of $40m plus costs for the failures. Additionally, Justice Abraham noted the size of the penalty as a deterrence for further non-compliance.
Following the Federal Court’s ruling, ASIC Deputy Chair Sarah Court also commented that pricing failure is an “industry-wide issue” and referenced ASIC Report 765, When the price is not right: Making good on insurance pricing promises (23 June 2023), which revealed that ongoing failures had so far seen general insurers repay $815m to over 5.6 million consumers.
August 2023
On 16 August 2023, ASIC released Report 768, Navigating the storm: ASIC’s review of home insurance claims, which assessed claims handling practices against the obligation of general insurers to manage claims efficiently, honestly and fairly. The report identified five key areas for improvement, namely better communications with consumers, project management and oversight, management of complaints, dealing with vulnerable consumers and resourcing.
Following the High Court ruling on Zurich Insurance Company Ltd v Koper [2023] HCA 25, insurers who write for businesses in New Zealand may now be exposed to litigation in NSW – even where circumstances of the case may have limited connections to the state. Under section 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), third party claimants may bring proceedings in NSW courts to recover proceeds of insurance directly from insurers. This High Court ruling confirms the exercise of jurisdiction by a State court under S 51(XXIV) of the Constitution to allow legal proceedings against insurers in NSW, despite the insured property being based overseas.
September 2023
Double insurance was discussed in the Opal Tower case of WSP Structures Pty Ltd v Liberty Mutual Insurance Company t/as Liberty Specialty Markets [2023] FCA 1157.
On 28 September 2023, the Federal Court of Australia ruled that a liability policy covered a sub-contracting engineer and opened double insurance claims.
Justice Colvin determined that the structural engineer WSP was insured under the liability policy in question, and also covered under its own professional indemnity policy. Oftentimes when two insurers cover the same risk, and one of them has indemnified the insured, the other insurer may plead this as a defence to the insured’s claim.
However, the grant of indemnity by one insurer is not enough for the second insurer to raise a defence based on the argument that there is nothing left for it to indemnify. For that defence to be viable, the insured must be fully paid out under the first policy.
As Justice Colvin acknowledged, the inclusion of engineers and other professionals as insureds under liability policies could result in burdensome additional premiums, and unnecessary double insurance claims.
November 2023
Late November, the Federal Court of Australia passed down its ruling on Australian Securities and Investments Commission v RACQ Insurance Limited [2023] FCA 1503. RACQ was penalised $10m for sending out potentially misleading PDSs on at least 5 million occasions between March 2017 and March 2022 which resulted in just under 460,000 customers missing out on discounts totalling $86.5m. ASIC Deputy Chair Sarah Court noted the ruling as a “clear message to the insurance industry that failures in pricing practices will not be tolerated”.
The Building Legislation Amendment Bill 2003 (NSW) also passed on 21 November 2023. Thereunder, the developer can take out decennial liability insurance (‘DLI’), which covers the common property of strata apartment buildings against defects for a period of 10 years, before occupation of the building. This is said to prove an alternative option to the Strata Building Bond and Inspection Scheme (‘SBBIS’) under the Strata Schemes Management Act 2015 (NSW). SBBIS only covers costs of defect rectification up to the valuation of the bond paid, currently at 2% of construction value, whereas DLI will cover rectification of defects up to the contract cost of the apartment building, even if the developer or builder becomes insolvent or ceases to operate.
Also in November 2023, four COVID-19 Business Interruption class actions have been listed for hearings in the Federal Court of Australia in 2024. These class actions were previously deferred pending the industry test case. These include Cody Gemtec Retail t/as the National Opal Collection v the underwriting members of Syndicate 2003 at Lloyd’s; Strand Fitness & ors v QBE; CMC Hospitality v Insurance Australia; and Vicki Field Swim School v Hollard. The Federal Court has ordered that notices inviting policyholders to register interest are to be distributed by 9 February 2024. The results of these hearings will most likely be an area of discussion within the industry in 2024.
And that’s 2023!
This recap covers legal, regulatory and judicial activities last year considered of note by the author and does not represent a comprehensive list for what occurred in 2023. Insurance industry participants ought to remain alert of further developments in 2024 and the potential impacts on their respective fields.
Read the 2022 recap article here.
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