We have addressed previously the Unfair contract terms laws which protect consumers from unfair terms in circumstances where they have little or no opportunity to negotiate with businesses, such as with standard form contracts where one party is a consumer or small business (generally, one that has been prepared by one party to the contract, and it is offered on a take it or leave it basis, that is, no ability to negotiate underlying terms and conditions).
Most insurance contracts were exempt, however that has now changed.
On 30 July 2019, the Federal Government released, for consultation, the draft Treasury Laws Amendment (Unfair Terms in Insurance Contracts) Bill 2019 to extend the unfair contract terms regime found in section 12BF-12BM of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) to insurance contracts.
It is important to note the current exclusion from the unfair contract terms regime of terms that define the main subject matter of an insurance contract remains, but the exclusion is now limited to only the description of what is being insured rather than terms about the main subject matter, and it is crucial to include transparent terms that set the quantum or existence of the excess or deductible in an insurance contract. It is also planned to allow third party beneficiaries of insurance contracts to bring actions against insurers under the unfair contract terms regime, not just the insured.
Insurance contracts, like all contracts, are still subject to the obligation of utmost good faith. It is likely the draft Bill will be challenged by the insurance industry.
A timely reminder that all business, now including insurers, who have service agreements, customer agreements, and other contracts, must comply with the legislation to promote fairness. Otherwise, the contracts are not worth the paper they are written on.
To reiterate the summary of Unfair contract terms laws, most terms in standard form consumer contracts are covered by the laws, as described above, except:
- terms that set out the price
- terms that define the product or service being supplied
- terms that are required or permitted by another law.
Remember, the following questions can help you recognise a potentially unfair term, but it is important to note that the final decision on whether a term is unfair can only be made by a court. You should also be aware that the fairness of a term must be considered in the context of the contract as a whole.
– Does the term cause a significant imbalance between your rights and obligations and those of the business, for example, does the business have more power than you? Are you penalised if the contract is terminated (through no fault of your own) but the business is not penalised? Can the business change important terms of the contract without asking you? Can only the business decide whether the contract has been
– Is the term reasonably necessary to protect the legitimate interests of the business? For example, while it may appear to you that a term is unfair, the business may have (and must prove) a genuine commercial reason for including it.
– Would the term cause you detriment (financial or nonfinancial) if the business tried to enforce it? For example, would you lose money or suffer inconvenience, delay or distress if the term was enforced?
– How transparent is the term? For example, can you understand what the term says? Is the term presented clearly and expressed in reasonably plain language? Or is it hidden in fine print or written in complex technical language?
Unfair contract terms laws are relatively modern, and many consumers and business are unaware of their existence. It is important, both as a business and consumer, to ensure your contracts comply with the law, to provide certainty for all parties. Further, if you feel a term in a contract you are party to, is unfair, contact a lawyer, or you can call the ACCC for more information.