Informing the insured person of restrictions
The insurer must clearly inform consumers of restrictions in the insurance policy before the contract is entered into.
What contracts are covered
Section 35 applies to:
- comprehensive car insurance
- home building and contents insurance
- sickness and accident insurance
- consumer credit insurance
- travel insurance.
If the insurer fails to disclose restrictions
If the required information is not given, the terms of the contract will be set by law (s 35).
The terms of this statutory contract are invariably more generous and less restrictive than those in the insurer’s policy document. The insured person may be able to claim more than the insurer’s contract allows, or to claim where the contract does not allow it.
If there is dispute, the insurer must prove that it clearly informed the person of the restrictions.
In one case, the Insurance Enquiries and Complaints panel found that the insured was not clearly informed of a restriction. Section 35 therefore applied, because the restriction was inconsistent with other terms of the contract,.In addition, the change in the policy (which was advised at renewal) did not refer to the earlier broader wording of the policy, so it was not obvious that the risks covered had been restricted.
What is ‘clearly informing’?
The NSW Supreme Court has held that the obligation to ‘clearly inform’ is very strict, and may not be satisfied just by giving a person a copy of the policy.
The wording and layout of the policy should also be examined.
Where there was a breach of the duty of utmost good faith
Sometimes the insurer’s duty to act in the utmost good faith may oblige it to specifically draw the insured person’s attention to an exclusion clause.
In AAMI v Ellis (1990) 6 ANZ IC 60-957 the South Australian Supreme Court held that the insured had breached the contract by modifying the insured motor vehicle, and that on a strict view the insurance company was entitled to deny the claim.
However, the court then held that, considering the insured’s age and inexperience, the company could rely on the exclusion clause only if it had specifically drawn that clause to the person’s attention. The company had breached its duty of good faith by not doing so, and therefore could not rely on the exclusion clause.
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