The promise of a reasonable response to material non-disclosure as outlined in the new Fair Insurance Code
has excited some industry commentators at this year’s New Zealand Insurance Law Association (NZILA
) conference – but others were keen to see how it played out in practice first.
Appearing on a panel discussing the new Code, Tim Grafton, the CEO of the Insurance Council of New Zealand (ICNZ) told attendees that more consumer-centric law changes in the UK and Australia had influenced the inclusion of the promise to use a more reasonable response to material non-disclosure.
He added that the research ICNZ had done into the actual statistics proved the problem wasn’t that significant, with only 34 of 883 complaints made in the last five years being in respect to material non-disclosure, and only five of them were upheld.
New Zealand partner Crossley Gates
, also appearing on the panel, said it would be very interesting to see how the term ‘reasonably’ would be interpreted, adding that he was all for a move away from the current stance, which he described as ‘archaic and not consumer friendly’.
“I’m pleased to see that the Code provides a greater menu of remedies rather than the single avoidance ab initio that the common law provides, which is a very blunt instrument,” he said.
“I see that as an opening for the dispute resolution schemes to apply the Australian test of proportionality, so in other words you look at what the position would have been if the information was disclosed.”
Carl Schreiber, case manager at Financial Services Complaints Ltd (FSCL
“I think it’s fair to say that we were pretty excited to see the word reasonable put in there,” he said.
However, he did note that most terms of reference for dispute resolution schemes actually say that they will decide them in relation to the circumstances of that individual case on a fair and reasonable basis while having regard to the law.
“But the fact that this is in the Fair Insurance Code does give dispute resolution schemes the ability to go back in and look at the Australian position, and also the English position, so they will be very useful,” he said.
Crossley Gates also drew attention to the change in the new Code in relation to what is a material fact, which he said had changed from objective to subjective.
“The new Code is materially different, it says the test is you must tell us facts that may affect our decision.
“Will the dispute resolution schemes or adjudicators have to go to the particular underwriter and ask if it could affect their decision? There’s a certain amount of self-serving answer on that one so it’s going to be interesting to see how the dispute resolution schemes approach that question.”
Schreiber suggested schemes could go to a different insurer to get industry best practice.
One of the audience members, Virginia Douglas from the Insurance & Savings Ombudsman scheme, said that insurers avoiding policies was still a huge issue in the F&G sector and that they may struggle to adapt to using reasonableness as a remedy as it was not used to that approach.
She added: “I think the problem is still that most people don’t understand it or they’d tell you in the first place, so the actual materiality is still at the heart of it. People still fail to appreciate that they’ve got to disclose that information and the response is often tied to what the insurer believes the person thought at the time and so they want to give you an indication. It does have huge implications for brokers too.”
Duane Duggan, president of the board at the Insurance Brokers Association of New Zealand (IBANZ
) and head of insurance legal at Crombie Lockwood
, said he thought insurers’ use of a ‘very blunt tool’ was currently inconsistent.
“I think the jury’s out and we’ll wait and see how we go in terms of how reasonableness actually works its way through as a tool, whether it changes.”
Duggan said the point around clients understanding their obligations was a very relevant point.
“The new Code goes a good way to explaining what situations and information is required so the more the Code is made known to the right community hopefully the more people will understand what their obligations are and the issues around non-disclosure will be left as a result.
“I think it’s incumbent on all of us as an industry to make sure clients know how it’s going to impact them, not only when they go to claim but before they actually enter into a contract of insurance.”