5.18 Prior to the enactment of the Insurance Contracts Act 1984 (Cth) (ICA) the Australian law of insurance contracts was a mixture of common law principles and a number of imperial, federal and state statutes. Until the Commission commenced its review of insurance contracts in 1976, there had been no coherent scrutiny of the adequacy and appropriateness of these principles and statutes.
5.19 The review of the general law of insurance began in September 1976 when the Commission was given a reference by the then Attorney-General which required it to report on the adequacy of the law governing contracts of insurance. The Commission was required under the terms of its reference to have regard to the interests of the insurer, the insured and the public. One focus of the review was to ensure fairness having regard to the relative bargaining power between insurers and insureds.150
5.20 This review resulted in two related but self-contained reports from the Commission, namely Australian Law Reform Commission Report 16 Insurance Agents and Brokers (ALRC 16) relating to the conduct and regulation of insurance intermediaries, and Australian Law Reform Commission Report 20 Insurance Contracts (ALRC 20) relating to insurance contracts.
5.21 The main recommendations in ALRC 16 and ALRC 20 were adopted and implemented in the Insurance (Brokers and Agents) Act 1984 (Cth) (IABA) and the ICA respectively.
148 L Groom Hansard (H of R) 6 October 1908, 764.
149 The MIA was amended by the Statute Law Revision (Decimal Currency) Act 1966 (Cth) and s 2 was repealed by the Statute Law Revision Act 1973 (Cth). See para 4.3.
The history of marine insurance law 69
ALRC 16 and the Insurance (Agents and Brokers) Act 1984 (Cth)
5.22 The review of the law relating to insurance intermediaries took place when a number of major defaults by insurance brokers had occurred, causing loss to the public and affecting the good name of the insurance industry. Between 1970 and 1979, at least 44 broking firms had become insolvent resulting in premium losses involving millions of dollars.151 In determining the changes to be made to the law, the Commission was particularly concerned with the need to protect innocent purchasers from losses which occur as a result of marketing methods, to promote an informed choice among insureds, and to encourage competition.
5.23 The IABA, which implemented most of the Commission’s recommendations, is aimed at
• strengthening the financial stability of the insurance industry
• protecting the insuring public against the negligence or misconduct of an agent or broker
• the minimisation of practices harmful to the insuring public, and
• the maintenance of standards of conduct of, and quality of advice offered by, agents and brokers.152
5.24 Its main provisions deal with insurers’ responsibility for the conduct of intermediaries, misrepresentations by intermediaries, regulation of brokers and payments to intermediaries.
5.25 As the IABA applies to all contracts of insurance governed by Australian law, some of its provisions, for example, those relating to payments to
intermediaries, may overlap with those in the MIA relating to agents and brokers.153 This is dealt with in detail in ch 13.
ALRC 20 and the Insurance Contracts Act 1984 (Cth)
5.26 Reform to the general law of insurance was considered necessary as
insurance contracts were subject to a bewildering variety of laws which gave rise to anomalies and uncertainties. Those laws had not kept pace with social and
economic developments in the community. The level of complaints from dissatisfied policy holders showed a need for change.154 To some extent the complaints which generated the Commission’s earlier inquiry and the subsequent legislation were repeated in the Commission’s current review of the MIA.
151 Hansard (H of R) 4 June 1984, 2826.
152 Explanatory memorandum, Insurance (Agents and Brokers) Bill 1984 (Cth). 153 See MIA s 58–60. See ch 13.
70 Review of the Marine Insurance Act 1909
5.27 The terms of reference specifically excluded marine insurance as it was regarded as a discrete area of insurance with special significance for international trade and commerce.155 The reasoning that led to that conclusion has never been enunciated in detail. Even if the conclusion is valid, the omission of marine
insurance from the earlier review has meant that many of the concerns dealt with in this report cover the same or similar points raised twenty years ago. The
recommendations in this report reduce, but do not remove, the differences between the two statutes.
5.28 In ALRC 20 the Commission recommended the making of a national law regulating insurance contracts that would be superimposed on existing laws. 5.29 The Commission saw a need to promote an informed choice of insurance and to avoid unfair burdens to the insureds in respect to the remedies available to insurers for misrepresentations, non-disclosure and breach of contract.156 It was noted that ‘a system which persistently disappointed the reasonable expectations of insureds can hardly claim to represent a fair balance between the competing interests of insurers and insureds’.157
5.30 Many of the Commission’s recommendations adopted in the ICA were intended to improve the operation of the insurance market by ensuring that necessary and adequate information is available to prospective insureds and to provide a fairer set of rules governing the relationship between insureds and insurers.158 For example, one of the Commission’s recommendations which was adopted in the ICA involved the abolition of the requirement for an insurable interest in general insurance contracts as the Commission found that the indemnity principle and gaming and wagering legislation already provided sufficient
protection to insurers against destruction of the subject matter of insurance.159 Another key recommendation was the abolition of the insurer’s automatic right to avoid a contract in all cases of non-disclosure or misrepresentation regardless of actual loss as this was considered to be out of all proportion to the harm caused by the insured’s breach.160 Both of these issues, among others, arise again for
consideration in this report.
5.31 In 1998 the ICA was amended by the Insurance Laws Amendment Act 1998 (Cth) to exclude pleasure craft insurance from the operation of the MIA.161
155 Australian Law Reform Commission Discussion Paper 7 Insurance contracts Sydney 1979 (ALRC DP 7) 5.
156 ALRC 20, Summary of recommendations. 157 Ibid 10.
158 Ibid Summary of recommendations. 159 Ibid.
160 Ibid 118.
The history of marine insurance law 71