Consumers set to gain further protection in insurance contracts

The Australian Government is preparing to make sweeping changes to the insurance industry to create greater protections for consumers.

To date, insurers have seemingly held all the power, and use a take-it-or-leave-it approach to their contracts when dealing with potential customers. Consumers and small businesses have been powerless in being able negotiate their insurance contracts. This means they have often been stuck with unfair contact terms.

The proposed laws will seek to expand protections which exist in other areas to provide consumers and small businesses with greater protection when entering into contracts with insurers.

Unfair contract terms protection

Laws to protect consumers and small businesses from unfair terms in standard forms were introduced in 2010, but only covered financial products or services. Insurance contracts are currently excluded.

Under these laws, a term in a contract which would be detrimental to the consumer or small business and has the potential to cause financial – or non-financial – loss, may be argued as void, and therefore does not apply.

Proposed changes

If the laws are successfully changed, insurance contracts will no longer be excluded from existing protections. This means consumers and small businesses will be able to ask a court to declare that a term in an insurance contract they have entered into is unfair.

When a court declares that a term is unfair it becomes invalid. However, the rest of the terms in the contract continue to operate.

This is an important change because it means that insurers may no longer be able to use unfair terms to limit or avoid performing their obligations under insurance contracts.

Similarly, consumers may be allowed sue their insurer, even if a term in their insurance contract limits their right to sue.

With this in mind, however, it is unlikely that terms outlining things like what is being insured, or setting out any excess, would ever be considered unfair terms, as long as they are presented clearly in the insurance contract.

How we can help you

If you are involved in a dispute with an insurer, Slater and Gordon can help you by:

• Providing you with advice about your rights under the unfair contract terms regime
• Assisting you to negotiate a resolution with your insurer
• Representing you in any subsequent legal proceedings against your insurer

Learn more about our commercial litigation services , or if you have an enquiry about an insurance dispute, submit an enquiry online.