The Law Handbook 2024

Chapter 10.4: Insurance 955 other words, they cover policyholders for losses sustained by them upon the happening of an insured event. A policyholder cannot recover more than they have lost. The nature of an indemnity or cover under an insurance policy depends on the terms of the policy and may include one or more of the following: • payment of market value; • replacement; • new for old replacement; • repair; • reinstatement; or • payment of an agreed value. All of the above are normally subject to the policy limit, which is the maximum sum payable by insurers under the policy. The nature of the indemnity provided under an insurance contract depends on the terms of the contract and the nature of the claim. In most cases, under an insurance contract, the insurer will cover the policyholder against loss or damage as a result of an insured event subject to the insurer’s right, as far as circumstances permit, to repair, reinstate or replace the item that is the subject of the insurance claim. If the policy permits the insurer to choose to pay the value of the property at the time of the loss, that value is calculated on the basis of the amount of money required to restore the policyholder to their position at the time of the loss. Where repair is permitted under the policy, this may mean either actual repair or paying the cost of repair. Sometimes the indemnity principle works to a policyholder’s disadvantage. An insurer is normally not required to repair a vehicle if the cost of repairs exceeds the value of the vehicle less any excess under the policy. In such circumstances, the policyholder receives the ‘write-off’ value of the vehicle, which is calculated as the pre-accident value of the motor vehicle less any salvage value, less any excess. Where the insured vehicle is relatively old, this may mean very little return to the policyholder, and it may not be enough to purchase a replacement vehicle. If an insurer chooses to reinstate or repair damaged property, these repairs must be carried out to the policyholder’s reasonable satisfaction and within a reasonable time. The insurer is responsible for the damaged property while it is being reinstated or repaired. Any further damage to the property during this period is normally the insurer’s responsibility. Under the Insurance Code, an insurer offering a cash settlement under a home building policy is required to provide a written statement explaining the cash settlement. This requirement has now been legislated and section 948C of the Corporations Act 2001 (Cth) requires an insurer to provide a policyholder with a ‘cash settlement fact sheet’ when offering to settle all or part of an insurance claim by a cash payment. The information that must be included in this fact sheet is set out in section 948F. Consumer insurance contracts One of the Hayne Royal Commission reforms is the introduction of a class of insurance policies called ‘consumer insurance contracts’. These policies are defined in section 11AB of the IC Act to mean ‘insurance obtained wholly or predominantly for personal, domestic or household purposes of the insured’. Consumer insurance contracts receive special attention under the IC Act. These policies are distinguished from policies obtained for business purposes (e.g. professional indemnity insurance and industrial special risk policies). If a consumer asserts that a policy is a consumer insurance contract, the insurer is responsible for establishing otherwise. This class of insurance policies is new. It is intended to cover a range of policies and to extend the definition of prescribed contracts. Consumer insurance contracts include: • motor vehicle insurance; • home buildings insurance; • home contents insurance; • sickness and accident insurance; • consumer credit insurance; and • travel insurance. The provisions about prescribed contracts remain in the IC Act. Prescribed contracts are those included in the list above. The IC Regulations set out the minimum requirements for these policies such as minimum policy limits and the required risks or insured events to be covered by the prescribed contract. If the policy under consideration is a prescribed contract, it is important to check the IC Regulations to ensure that your policy conforms with the minimum requirements. If an insurer seeks to reduce or decline cover under a prescribed contract, you should confirm