The Law Handbook 2024

Chapter 10.4: Insurance 959 Even if the relevant insurance contract contained an average clause, section 44 of the IC Act would provide the following basis for averaging: $2000 x $40000 80% x $60000 = $1666 This means the policyholder would only receive $1666 (less any excess) towards the replacement of the stereo and would need to pay at least $334 of the loss themselves. Unusual terms Before an insurance contract is entered into, the insurer must clearly inform the consumer in writing of any unusual provision and its effect (s 37 IC Act). If the insurer does not do this, it cannot rely on an unusual provision in the contract (not a prescribed contract; see ‘Consumer insurance contracts’, above). An example of an unusual term is a requirement that a policyholder immediately notify the insurer of a claim. Other insurance Some policies seek to limit the liability of the insurer if the policyholder has entered into another insurance contract covering the same claim. An example of this is a provision in a policy that cover under the policy is only available for amounts not paid by any other valid and collectable insurance. Under section 45 of the IC Act, such ‘other insurance’ provisions are void, unless the other insurance policy is identified and specified. Unnamed insureds A person entitled to cover under an insurance contract cannot have a claim denied because they are not named in the policy (ss 20, 48 IC Act). For example, a home contents insurance policy that extends coverage to a policyholder’s family and their belongings covers the policyholder’s spouse and children even though they are not named in the insurance documents. A ‘third-party beneficiary’ is defined as a person who is not a party to an insurance policy, but who is specified or referred to in the policy and who is entitled to benefit from the policy (s 11(1)). The Australian Securities and Investments Commission ( ASIC ) is entitled to bring an action against an insurer on behalf of third-party beneficiaries – if ASIC thinks that an insurer has breached the terms of a policy or the IC Act (s 55A). Direct claims against insurers Where an insured person or third-party beneficiary has died or cannot be found (after reasonable inquiry) and you have a claim for damages against that person, you may recover the amount payable under their insurance contract directly from their insurer (s 51 IC Act). Section 601AG of the Corporations Act 2001 (Cth) permits a direct claim against an insurer of an insured and liable company, if that company is subsequently deregistered. Where an insurer may not refuse to pay a claim Prior to the IC Act, the breaching of a condition in an insurance contract (regardless of how minor) normally entitled an insurer to avoid the policy altogether. This common law right of insurers has been severely restricted by section 54 of the IC Act. Section 54 is a much litigated and very important provision of the IC Act. It provides that an insurer cannot refuse to pay a claim in whole or in part by reason of some act or omission by the policyholder that occurred after the commencement of the policy, but the insurer may reduce its liability under the policy by an amount that fairly represents the extent to which the insurer’s interests have been prejudiced by the policyholder’s act or omission. For example, a motor vehicle insurance policy that excludes cover if the driver of the vehicle is unlicensed. If the insurer cannot demonstrate prejudice caused by the vehicle being driven by an unlicensed driver, it may be liable for the full amount of the claim. However, if the relevant act or omission by the policyholder is the cause of the loss claimed under the policy (e.g. drink-driving), then section 54 does not assist the policyholder. Resolving claims Most insurance policies require policyholders not to admit liability to the other party or attempt to resolve claims without the agreement of the insurer.