Insurance Law Review

This article first appeared in Legalwise as an industry update http://www.legalwiseseminars.c...

The Ministry of Commerce and Consumer Affairs has announced a review of New Zealand’s insurance legislation. The review will consider a number of issues, but it is likely that the review will lead to legislation to update and consolidate law as it currently stands. New Zealand’s current suite of insurance law legislation consists of:
the Maritime Insurance Act 1908, the Life Insurance Act 1908, both of which largely codified the common law as it stood at the time;
section 9 of the Law Reform Act 1936, which creates a charge over moneys which are or may be payable to cover an insured liability, as well as creating the right to sue against the insurer;
the Insurance Law Reform Act 1977, which amended a number of unfair common law rules;
the Insurance Law Reform Act 1985, which reformed some aspects of life insurance; and
the Insurance Intermediaries Act 1994 which codified and clarified the duties and obligations of Brokers and other insurance sales agents.
Beyond these statutes, insurance is governed by common law rules, many of which date from the 18th and 19th centuries. These rules reflect the commercial, social, and legal sensibilities of Georgian and Victorian England. However, a number of these rules make no sense in 21st century New Zealand.
The nature of the industry itself has changed considerably since Parliament last turned its mind to the subject. Before the mergers of the 1990s and early 2000s, insurers tended to be locally owned, were smaller and served their clients from local branches and offices. Today, most sectors of the insurance market are dominated by a small number of large, multi-national insurers offering policies across a wide range of classes of business, and with service provided remotely from national call-centres or on-line.
The nature of insurance contracts has also changed considerably. When the last truly substantive reforms occurred in 1977, insurance contracts were simpler, shorter documents, usually providing cover for a limited number of specified risks; such as householder policies which covered only damage from fire, theft or flood. Modern policies are more complex; insuring against a broader range of risks, and often bundling together a number of different covers in a single policy.
These changes mean that currently, neither insurers, nor their customers are well served by the current regime. There are a number of areas where clarification is needed, including; limitations periods for making a claim, and the nature of the reciprocal duties of good faith between insured and insurer. A number of existing common law rules, such as those around fraud and non-disclosure often lead to grossly disproportionate outcomes.
Currently New Zealand is behind other jurisdictions Australia comprehensively overhauled its insurance regulatory regime with the Insurance Contracts Act 1984, which has itself had several substantial re-writes since. England’s insurance regulations entered the 21st century when Westminster passed the Insurance Act 2015. 

British Columbia and Alberta, and a number of American States have also reformed their insurance law. The Law Commission and the then Ministry of Internal Affairs have also recommended substantial changes on 3 occasions since 1990, but with no action resulting. It is the authors opinion that reform is long over-due.
Given overseas experiences, it is hoped that the reviews recommendations for reform will include:
- Reform of the rules of non-disclosure – currently an insured has a pre-contractual duty to supply information which they may not reasonably understand to be relevant. A breach of the duty allows a policy to be cancelled and a claim not paid, although the non-disclosure may have occurred decades earlier.
- Reform of the rules around fraud, and the remedies for fraud and mis-representation. Currently the rules are that any intentional falsehood no matter how minor, allow the insurer to decline an otherwise legitimate claim. This was applied in Back v National Insurance Co of New Zealand [1], where the insured, concerned that their claim for a house fire would be declined, altered evidence, a photo album of only sentimental value, to strengthen the claim. This led to the entire claim being declined, despite the fact that the falsified evidence did not increase the value of the claim.
- Clarification of the insurer’s duties of good faith, currently only recognised as relating to the open provision of relevant information and not passing mis-information. It is hoped that good faith will be defined as including a duty to settle claims is a timely fashion (as recognised in the English Insurance Act) with remedial damages available.
- A recognition of the difference between commercial and consumer customers, with simplified, less onerous obligations imposed on SME’s and consumers.
The Ministry is seeking comment on the review by 13 July 2018, details of the review are available at: http://www.mbie.govt.nz/info-services/business/business-law/insurance-contract-law-review

[1] [1996] 3 NZLR363