Contracts of Insurance Act 2024: a generation in the making
New Zealand's forthcoming insurance contracts legislation: the Contracts of Insurance Act 2024
A note on nomenclature. The reform is often referred to as the "Insurance Contracts Act", which was the title used in the 2022 exposure draft Bill. The legislation as enacted is the Contracts of Insurance Act 2024, together with the Contracts of Insurance (Repeals and Amendments) Act 2024. Both received the Royal assent on 15 November 2024.
Commencement
The Act is not yet in force. Commencement is by Order in Council, and any provision not brought into force earlier commences on the third anniversary of the Royal assent, being 15 November 2027. MBIE has indicated that 15 November 2027 is the operative date, and regulations to support the regime remain under development. Insurers therefore have a defined, and now relatively short, runway in which to rewrite policy wordings, underwriting questions and claims procedures.
Consolidation
The present law is scattered across a number of statutes, several of which are more than a century old, overlaid with common law doctrine. The Act repeals and consolidates that material into a single modern instrument. For practitioners, this alone is a substantial improvement in accessibility.
The consumer and non-consumer divide
The central structural innovation is the distinction between consumer insurance contracts, being those ordinarily entered into wholly or predominantly for personal, domestic or household purposes, and all other contracts, which are non-consumer contracts.
For consumer contracts, the pre-contractual duty of disclosure is replaced by a duty to take reasonable care not to make a misrepresentation, assessed against the standard of a reasonable policyholder. The duty bites before the contract is entered into or varied, and on renewal, but it is not a continuing duty during the policy period.
For non-consumer contracts, the policyholder owes a duty of fair presentation of the risk, closely modelled on the United Kingdom's Insurance Act 2015.
Proportionate remedies
The reform of greatest practical consequence is the replacement of avoidance as the default remedy. Where a qualifying misrepresentation or breach is neither deliberate nor reckless, the insurer's remedy is proportionate to what it would have done had the risk been fairly presented. The insurer may, for example, reduce the claim payment or adjust the premium, rather than escaping the contract entirely. Avoidance survives only for deliberate or reckless conduct.
Other significant changes
Every contract of insurance will contain an implied term requiring the insurer to pay sums due within a reasonable time. The duty of utmost good faith is codified as a mutual obligation. Arbitration clauses are not binding on the policyholder, and provisions prescribing the manner or time for making claims are restricted. Consumer policies must be worded in a clear, concise and effective manner under an amended Financial Markets Conduct Act 2013, and the unfair contract terms regime is extended. Provision is also made for regulations governing insurers' use of genetic testing.
Comment
Litigators should expect transitional argument. Contracts entered into, varied or renewed before commencement will continue to be governed by the existing law, and the boundary will not always be obvious.
New Zealand Law Commission, Some Insurance Law Problems (NZLC R46) was published in May 1998, with the Commission's covering letter to the Minister dated 21 May 1998. It was also published as Parliamentary Paper E 31AH.
That is the report generally identified as the starting point of the reform process, since it was the first occasion on which the Commission recommended changes to insurance contract law. It addressed five problem areas, beginning with the duty to disclose material circumstances, and annexed a draft Insurance Law Reform Amendment Act to sit within the Insurance Law Reform Act 1977.
No legislative action followed at the time. That gap of some 26 years between the 1998 report and the Royal assent in November 2024 is the basis for the "25 years in the making" framing that appears in much of the commentary. As if that is a good thing. Whereas it is most definitely not, it's an embarrassment. It is a reflection of every government since the report was published, which failed to act on proposed law reform. This is part of a broader pattern of successive governments failing to enact reform proposed by NZ's hard working Law Commission. SK.