The Law Handbook 2024

960 Section 10: Accidents, insurance and compensation Sometimes a claim can be resolved on reasonable terms, but the insurer has not yet decided to cover or pay the claim. In these circumstances, policyholders must be careful not to act in a manner that may jeopardise their insurance cover. Section 41 of the IC Act provides the policyholder with some protection in these circumstances. If an insurer does not respond within a reasonable time to a notice from the policyholder requiring the insurer to cover the claim, the policyholder may proceed to resolve the claim and an insurer may not refuse to pay the claim because the settlement was reached without the insurer’s consent. If an insurer agrees to cover a claim, it must decide whether it will assume conduct of any legal proceedings. A property claim arising from a catastrophe should be finalised within one month (pt 8 Insurance Code). Claim delays and interest Section 57 of the IC Act requires an insurer to pay interest to cover any delay in payment under an insurance contract. The period for which an insurer is required to pay interest commences on the day from which it was unreasonable for the insurer to withhold payment. The right to interest does not depend on the commencement of legal proceedings. The rate of interest is prescribed in the IC Regulations and is calculated on the basis of the 10-year treasury bond yield plus three per cent. Duty of utmost good faith Sections 13 and 14 of the IC Act have always implied in all insurance contracts a duty of utmost good faith; this requires both policyholders and insurers to act towards each other with utmost good faith. However, this implied duty had sat moribund (that is, on the verge of extinction) for several decades until the Hayne Royal Commission. Section 14A of the IC Act empowers ASIC to investigate an insurer that has failed to comply with the duty of utmost good faith in the handling or settlement of a claim or a potential claim under an insurance policy. Already – in ASIC v Youi [2020] FCA 1701 and ASIC v TALLife Limited [2021] FCA 193 – the Federal Court has found insurers guilty of a breach of the duty of utmost good faith in their management of claims under their insurance policies. Other considerations It is important for policyholders and legal practitioners to remember the following when dealing with a difficult insurer who is refusing to pay a claim. Courts generally interpret ambiguous terms in an insurance contract in favour of the policyholder. This is the ‘ contra proferentem rule’. Since 30 June 2021, insurance companies and their representatives have been accountable for their management of claims and ASIC has not been restrained from deploying regulatory intervention if claims are not managed efficiently, honestly and fairly. Since 5 April 2021, the unfair contract terms laws in the ASIC Act have applied to insurance contracts. Unfair terms in a ‘consumer contract’ or a ‘small business contract’ are void if the term is unfair and the contract is a standard form contract. Section 12BG of the ASIC Act defines when a contract term is unfair. Part 8 of the Insurance Code requires an insurer – within 10 business days of receiving a claim – to tell the policyholder how it will manage the claim. If this timeframe is not practical, they are required to agree to a reasonable timeframe with the policyholder. If an insurer appoints a loss assessor or adjuster, the Insurance Code requires an insurer to notify a policyholder within five business days of the appointment. Insurers are required to keep policyholders informed of the progress of their claim, at least every 20 business days. When a claim is rejected, an insurer is required to properly advise the policyholder in writing of that decision and their reasons. A policyholder can ask for the information relied on by the insurer in reaching its decision. The insurer must advise the insured about their review or complaint procedure. Ending an insurance contract Renewal Under section 58 of the IC Act an insurer must provide a policyholder with a minimum 14 days’ notice of the impending expiry (time and date) of a renewable insurance policy (insurance that is provided for a particular period of time and is of a kind that it is usual to renew at the end of that period of time). If an insurer fails to give this notice in accordance with section 58, the