The Unfair Contract Terms Regime (the Regime) is a national regime implemented to protect consumers who are purchasing goods or services using certain standard form contracts. The Regime attempts to mitigate the uneven bargaining power between individuals and small businesses entering into standard form contracts with larger corporate entities.
The recent amendments to the Insurance Contracts Act 1984 (Cth) apply the current Regime as it is contained in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) to all insurance contracts governed by the Insurance Contracts Act 1984 (Cth) except for contracts providing for medical indemnity cover.
These amendments, which came into effect 5 April 2021, therefore expand the protections afforded by the current Regime to consumers who have entered into certain general insurance contracts that unfairly advantage their insurer.
Though there are insurance contracts that fall outside of the Insurance Contracts Act 1984 (Cth), the Act applies to a very large range of insurance contracts such as general and life insurance, travel insurance and house and content insurance contracts.
When will the Unfair Contract Term Regime apply to my insurance contract?
Only standard form insurance contracts subject to the Insurance Contracts Act
entered into or renewed on or after 5 April 2021 will be covered by the Regime. The Regime will not operate retrospectively and so it will only apply to an existing contract term if the contract is renewed or that term is varied on or after 5 April 2021.
Further there are certain terms that the Unfair Contract Terms Regime will not cover. The Regime will not apply to terms that:
- define the main subject matter of the contract i.e. terms that define what is being insured;
- set the upfront price payable under the contract, being the premium payable;
- set the amount of excess or amount deductible (so long as this term is transparent by being expressed in reasonably plain clear language); or
- is required, or expressly permitted, by a Commonwealth, State or Territory Law.
When will a term be considered unfair?
Pursuant to section 12BG of the ASIC Act
, a term will be considered unfair if:
- it would cause a significant imbalance in the parties' rights and obligations arising under the contract;
- the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause financial or other detriment to a party if it were to be applied of relied upon.
Late last year, ASIC published two information sheets which helpfully provided examples of insurance contract terms that will likely be considered unfair. Examples of terms that will be considered unfair as taken from ASIC Information Sheets 210 and 211 include:
- terms that give the insurer the right to unilaterally vary the contract at its discretion without providing the insured with a real and reasonable opportunity to exit the contract without penalty;
- outdated definition terms that for example, do not reflect modern universal medical definitions such that an insured's claim is rejected on the basis that they do to meet the policy definition as the definition is outdated, inaccurate and restrictive;
- terms that establish excessive default fees that exceed the amount that the insurer would reasonably require to protect themselves from loss; or
- terms that allow the insurer to settle a claim by paying cash up to the amount the insurer calculates the cost of the service would be to the insurer (as opposed to the insured) rather than performing their obligations under the contract.
If a term is found by the Court to be unfair, the term will be rendered void, meaning it will cease to be binding or have legal force. The balance of the contract may still be relied upon though if the contract can operate without the unfair term.
In addition to having the power to declare a term or contract void, the Court also has the power to vary contracts containing unfair terms, order the insurer to provide services to the affected consumer or instead refund money, or refuse to enforce an unfair contract term.
Further reforms on the horizon
These amendments are just the beginning, with further amendments to overhaul the Regime agreed by the Federal and State Governments late last year. The proposed amendments are set to expand qualifying thresholds to allow more consumers and small businesses access to the Regime's protections, make unfair contract terms unlawful and widen the remedies available to the Court. You can read about the proposed amendments in more detail in our previous article Reform to the Regime: Protections against unfair contract terms set to be strengthened
The amendments to the Insurance Contracts Act 1984
(Cth) mark a significant expansion of the Unfair Contract Terms Regime. To avoid costly litigation, companies should be reviewing their standard form contracts to ensure they comply with the Regime.
To assist you undertake this exercise McCabe Curwood has created MC Act (Assess Contract Terms), an app that can be used to assess whether you are a party to a contract that is covered by the Unfair Contracts Regime and whether that contract contains any unfair terms. We encourage you to complete the free online assessment today.
McCabe Curwood has extensive experience acting in both contract and consumer law matters, and we are well placed to assist you understand how the Regime may apply to and affect your business contracts.