Although the Australian Consumer Law prohibits 'unfair terms' in any standard form consumer contract after 1 July 2010, insurance contracts have to date been specifically exempted from the unfair terms regime. But now Treasury has released a Consultation Paper on options for ensuring that consumers who purchase insurance have an equivalent level of protection as applies to the purchase of other financial products and services – including the removal of those exemptions.
What is the current position on 'unfair terms' in insurance contracts?
The Australian Consumer Law prohibits 'unfair terms' in any standard form consumer contract entered into, varied or renewed on or after 1 July 2010. Equivalent unfair terms provisions apply to most financial products and services under Division 2, Subdivision BA of the ASIC Act 2001. However, contracts of insurance (within the meaning of the Insurance Contracts Act 1984) have been specifically exempted from the unfair terms regime to date. This exemption has been based on a recognition that consumers' rights against insurers are already subject to pre-contractual disclosure, good faith and reliance protections under the Insurance Contracts Act and Corporations Act.
What may change?
On 12 December 2011, Treasury released a Consultation Paper seeking feedback on potential options for ensuring that consumers who purchase insurance have an equivalent level of protection as that which applies to other financial products and services. This includes, in particular, consideration of whether the prevailing insurance contract laws provide safeguards that are as broad as those under the Australian Consumer Law/ASIC Act unfair terms provisions, or whether the exemption to those provisions currently applicable to contracts of insurance should be removed.
What is an 'unfair term'?
In general terms, a term is 'unfair' if it causes a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party who would be advantaged and causes detriment (financial or non-financial).
An unfair term may include terms that permit one party (but not the other) to: avoid or limit performance of the contract, terminate the contract, vary the terms of the contract, renew or not renew the contract, unilaterally vary the characteristics of goods or services to be supplied under the contract or unilaterally determine whether the contract has been breached or to interpret its meaning. Terms which penalise one party for breach or termination or limit one party's rights may also be unfair.
A term in a consumer contract which is unfair will be void. However, the relevant contract will continue if it is capable of operating without the unfair term.
What can I do?
Submissions on the Consultation Paper are being sought by Treasury by 17 February 2012. A copy of the Consultation Paper is available here.