Greg Pynt, barrister, Francis Burt Chambers, Perth Oh behave Some of the ways in which the Insurance Contracts Act 1984 (Cth) controls the way in which insurers conduct claims Territory Insurance Conference resilient future

Onus of proof Section 54 of the ICA Utmost good faith in claims handling

Subject to the terms of a policy, if: an exclusion qualifies the entire insuring promise, the insured bears the onus of proving the qualification does not apply; the insuring promise is subject to a specific exclusion, the insurer bears the onus of proving the application of the exclusion.

The explosion cover only applied if there was physical evidence of the explosion. The requirement for physical evidence applied to all explosions and therefore had to be satisfied every time. Accordingly, the insured would bear the onus of proving physical evidence of an explosion.

Highway Hauliers was not indemnified if the driver of a prime mover: (a) had not achieved a minimum score on a driver test known as the ‘PAQS test’; or (b) was a non-declared (not an insurer-approved) driver.

but for s 54, the effect of a policy is that the insurer could refuse to pay all or part of a claim because of a post-contractual act or omission of the insured or of some other person; and the circumstances that gave rise to the claim fall within the insurer’s ‘core’ promise.

If engaged, the relief allowed by s 54 depends on whether the relevant ‘act or omission’: “could reasonably be regarded as being capable of causing or contributing to” an insured loss, in which case it is dealt with by s 54(2); or could not reasonably be regarded as capable of causing or contributing to an insured loss, in which case it is dealt with by s 54(1).

If an act or omission “could reasonably be regarded as being capable of causing or contributing to” an insured loss, the insurer can refuse to pay the claim, except to the extent that the insured proves the act or omission did not cause or contribute to the loss.

If an act or omission could not reasonably be regarded as being capable of causing or contributing to an insured loss, the insurer cannot refuse to pay the claim; it can only reduce its liability to pay the claim by the extent to which it has been prejudiced by the act or omission.

There is an implied term in every insurance contract to which the ICA applies, that requires each of the parties to it to act towards the other parties with utmost good faith in respect of any matter arising under or in relation to the contract: s 13. The duty applies to all aspects of the claims handling process.

The duty of utmost good faith obliges an insurer to be full and frank with its insured about: its handling of a claim; the reasons for its decision to reject a claim (if that is its decision); the reasons for its decision to pay its insured less than what the insured is claiming (if that is its decision); the progress of a subrogated claim or the defence of a third party claim it is conducting in the insured’s name.

investigate a claim or notification of circumstances, or inform an insured why it has decided not to do so; make a decision about whether or not to pay a claim, or explain to its insured why it is taking time for the insurer to make that decision; pay a claim if that is what it has decided to do.

The ICA controls the way in which insurers conduct claims, for example, by ss 13, 14 and 54. The underlying theme of the ICA as far as insurers is concerned is: Oh behave.