Contracts of Insurance Bill

Members, we come now to Part 2. This is the debate on clauses 10 to 69, “Disclosure duties”, and Schedule 2. The question is that Part 2 stand part.

Thank you, Mr Chair. Now, I know that there’s some material here relating to dishonesty, which other members will speak to, probably more articulately than I can because I wasn’t at the Finance and Expenditure Committee deliberations, but I do want to latch on to one quite important thing and that is the division between consumers and non-consumers. I guess there’s two aspects to this that I think are really critical. One is that the way the bill is currently framed, the insurer can, essentially, strong arm the insured into saying they’re a business when in fact they’re a consumer. That’s a problem.

The second is the kind of fictitious distinction—the idea that there’s this distinction of knowledge, skill, and ability if you’re a business, as opposed to if you’re a consumer. There are some consumers—look, let’s be honest, when I go and insure my house, I’m not getting the wool pulled over my eyes in terms of terms and conditions and what have you. Whereas someone who might be buying a small business—English might not be their first language; they’re in a much more vulnerable position. This immediate assumption that small businesses in particular don’t need protection or need different protection or are less deserving of protection doesn’t really work.

Having said that, it’s a rough proxy, but I think if you’re going to use consumer arrangements as a rough proxy for duties and remedies, then you’ve got to be really cautious about that. That’s why I’ve proposed reinserting clause 11. I think clause 11 is actually a really important one because it’s a default rule. It’s no more than a default rule where, if it can’t be shown to the contrary, the starting place is that the contract is a consumer contract.

Now, given what is at the disposal of insurers in terms of the dominance they have in the contracting arrangements—you know, a lot of contracts of insurance are done online or through brokers, both of which can manage the information and the certifications and things like that. “This is a commercial policy. Click here if you are a business.”—and if you don’t click yes, you can’t proceed. Very simple kinds of procedures that can exist, but a presumption that there’s a consumer contract gets around the situations where people get a contract for their dwelling which they might have a home office in.

I mean, this is the kind of thing that happens. A lot of people run a small business from their garage, and all of a sudden there’s a real risk that the insurer will go, “Uh-uh, you’re running a business. You’re running your candle-making business from your garage, therefore it’s not a consumer contract; it’s a commercial contract. I have an entirely different set of remedies.” And when you make a mistake around, you know, the age of your house or whether it’s been rewired—boom, you’re substantially worse off than you would be if you’re a consumer. That’s a really, really important point. I’m sorry to say that I don’t trust insurers not to use those kinds of advantages.

This is why in a lot of legislation—the Fair Trading Act, the Credit Contracts and Consumer Finance Act, and so on—there’s a little bit of a thumb on the scales for the consumer. There’s very good reason for that: because there is a massive imbalance of power in these arrangements. These are formal contracts. You don’t get to choose the terms. If there is a way in which insurers can make these—

💬 Ryan Hamilton: What’s your question?

Well, my question is if—well, if you want to go down to the Table, go and get the Amendment Paper; you’ll have heard my question is: will he adopt my Amendment Paper related to clause 11? It’s the first thing I said. Don’t just kind of wake up: “Sorry.” You know—hello? Yep, perhaps you too were socialising a bit too long with the media.

The point is this: the consumer contract issue is an important one. A presumption should exist so that, where there is any doubt whatsoever, it falls in favour of the consumer, and the greater remedies or the greater protections exist in respect, particularly in respect, of those misrepresentations that we will talk about a bit later.

Thank you, Mr Chair. I just want to talk a little bit about how we want to proceed on this side of the Chamber with discussing this bill. This bill started its journey through the House being drafted under the former Government and under the former Minister of Commerce and Consumer Affairs, and between the former Minister and the current Minister, it changed its character a little. I think my colleague Dr Duncan Webb referred to it as—that one of the things this side of the House had in mind when we were in Government, in terms of drafting this, was being on the side of the little person. On this side of the House, we’re the party of workers, we’re the party of the small guys, we’re the party who try to ensure—

💬 Dana Kirkpatrick: What?

The party of small business. We’re the party who try to ensure that workers are treated respectfully in the workplace.

💬 Simon Court: You vaccine-mandated them out. You mandated them out of work.

We actually try to have the law set up in such a way that we look after the little person. I notice that my colleagues on the other side of the Chamber are eager to participate in this debate; if they’d like to take a call, they’re very welcome to.

We had been in a position where we had wanted to support this bill, but then, as it finally made its way through the Finance and Expenditure Committee, some of the changes that were brought in place, to our mind, have taken away some of the protections for the little guy. As my colleague Dr Webb said, they really tilted the balance in favour of the insurance companies. For that reason, on this side of the Chamber, the Labour Party feels it can no longer support this bill.

Now, a lot of those clauses that have made us change our mind are sitting in this part of the bill. What we intend to do, though, is to try to discuss in a reasonably orderly fashion and go subpart by subpart by subpart. Just for the time being, we’re confining our discussion to the very first few clauses in Part 2 of this bill and looking at those issues around the definition of a consumer insurance contract and a non-consumer insurance contract.

It’s interesting: my colleague Dr Webb points out that, as someone who knows a little bit about insurance, he is not likely to be bamboozled by an insurance contract, but most of us in this House aren’t insurance specialists. Most of us in this House end up signing insurance contracts which have got lots and lots and lots of detail in them that most of us probably—we might read them through but not really understand what’s going on. We are the sorts of people, in our non-expert capacity, who this bill should seek to protect.

I want to look again at this consumer insurance contract versus a non-consumer insurance contract. It, basically, says a consumer insurance contract is the pretty ordinary sort of stuff that you and I sign up to in our domestic capacities on, hopefully, an annual basis, and a non-consumer insurance contract is everything else. That, as my colleague Dr Webb pointed out, might work OK for a larger business, or perhaps an employer who’s an insurance broker, it might work OK for a larger business that has access to good legal services, but it’s not so good for the mum and dad business, for the small business, and so on.

I guess I’d like the Minister to put his mind to whether that line has been drawn in the right place, perhaps that some of those protections should be afforded to small-business people as well, some of the protections in this bill, so that small-business people, you know, mum and dad operation—mum and mum operation, for that matter, or dad and dad; however it’s constructed—the family farm, whatever, that kind of small, local business, corner dairy, whether those sorts of businesses ought to be afforded the same type of protection as the consumer insurance contracts. After all, as Dr Webb pointed out, people running those businesses are no more likely to be expert in insurance than the rest of us who are just signing up to the ordinary old domestic contracts.

So, as a party that cares about workers, cares about small people, cares about small business, it’d be quite good to get some insight from the Minister into his thinking around that consumer insurance contract versus non-consumer insurance contract.

Thank you very much, Mr Chair. Just to be clear, the member wants to reinstate clause 11—just for my colleagues—which was unanimously agreed by the Finance and Expenditure Committee should be removed. That’s the proposition we’re talking about. But it is a substantive point, so I do acknowledge that, Dr Webb.

I’d just draw your attention—I know your conversation was in relation to clause 11, but, actually, the reference to “consumer” or “non-consumer” is actually in clause 10. Clause 10(1) defines what a “consumer insurance contract” is, and it says that it is “predominantly for personal, domestic, or household purposes;”, whereas in clause 10(2) it says that a non-consumer insurance contract is, basically, anything else which is not a consumer insurance contract. Obviously, for people who have had much to do with businesses—as the member has claimed to have done—normal business-type insurance covers business continuity insurance, specialist machinery insurance that might be bespoke to their machinery, or it might be to do with certain aspects of the business which are all quite sophisticated and tailored to that product.

The reason why this presumption was removed is quite simply that a presumption is not needed or appropriate for a definition that assesses the purpose of a contract on an objective basis. I think it’s really important to understand that compared to consumers, small businesses tend to have more complex insurance needs and policies, as I referenced before. That’s why the demarcation has been made, and, no doubt, that is why the committee unanimously agreed to delete this clause.

Thank you, Mr Chair. We too, on behalf of the Green Party, when it comes to this substantial section with Part 2, will be going subpart by subpart. In the beginning, we would like to focus on clauses 10 and 12. And, again, Mr Chair, based on the conversations we had yesterday, when relevant we might also draw in elements of clause 1 that are referred to in Part 2 here.

First of all, thank you, Minister, for your explanation around this, but I think one of the things is that the interaction between clauses 10 and 11 is quite important here. Now, the explanation that was given for the removal of section 11 is not because of its need to be redundant but because of the fact there are no comparable sections in either the Fair Trading Act or the Consumer Guarantees Act.

I would like to ask the Minister whether, through consultation, maybe through conversations with the Finance and Expenditure Committee chair—I too was not part of this particular select committee—whether in those other relevant Acts that were referred to, there is a distinction under those Acts between what is considered a “consumer” and what is considered a “non-consumer”. If those distinctions aren’t available in those relevant Acts, then the fact that there is a basic or default aspect, as the Hon Dr Duncan Webb mentioned before, is quite important.

Going back to clause 10, now one of the things when it comes to the separating of consumer and non-consumer contracts—I think it is a good move because that actually clarifies certain needs and actually clarifies some of the things that are, hopefully, for the benefit of consumers. However, I think one of the things that is important to address is when we’re looking at the size and scale of what is considered the consumer and non-consumer contract.

Now, the Hon Dr Duncan Webb mentioned, in the context of non-consumer contracts, small family businesses, but I want to draw the Minister’s attention to the size and scale of, potentially, consumer insurance contracts. In this particular case, I would like to ask the Minister: for landlords who own, like, 10, 20, 50 properties who genuinely conduct it as a business but without having to register as a business, would the insurance for their property—I mean both for the property and potentially even for their content—be considered a consumer insurance contract or non-consumer insurance contract? Granted, those particular personnel, the scale that they’re able to conduct under a consumer insurance contract, might be much broader than family sized businesses under a non-consumer contract. I wondered if the Minister has considered possibly putting a limitation or precautions around this.

I draw the Minister’s attention to a much later section, which I’m sure will be discussed later, but the limit that is being placed on something has been done in this very Act in clause 175, when additional sections were added in terms of contract insurance with a particular monetary amount to it. For example, clause 175(i) gives a threshold of $20,000. I wondered, in this case, has it been considered by the Minister to put a certain level of threshold on determining what is not necessarily the total sum of a consumer contract, but in terms of the maximum threshold that individual consumer contracts may be reached, and beyond that limit, it can no longer be considered a consumer insurance contract?

Those are the two sort of questions I mentioned; it’s whether section 11, when referring to, I think, the Consumers Guaranteed Act or the Fair Trading Act—in those Acts there is a distinction. I’m not an expert when it comes to consumer law. Those two Acts also contain a distinction; if it doesn’t, then section 11 is important. Secondly, it is whether the Minister considered having a threshold on the scale of consumer insurance contract akin to what is late in clause 175.

Thank you, Mr Chair. I have got the portfolio of small business, so I am interested in this line of inquiry about those small businesses. I was reading an article which said that the Minister has visited thousands of those little businesses, and some of the ones I’ve visited blend the home and the business very significantly. I suppose that it’s very likely that the experience of the Minister is the same. Not only are they blending those things but they are some of our most vulnerable people. A lot of migrants are coming in, and they’re running those businesses. It seems to me that—I drew on this a little bit in the earlier part about the choice of law provisions—they are particularly inappropriate to a group of people who already find it hard to get a debt resolved and to navigate a system that is already foreign to them, and to actually push any further is hard.

I wondered about that aspect and whether—because I wasn’t on the select committee—there had been submissions in support of drawing a line which was more financial rather than one that drew the line, and what the discussion was about—for example, on the home/business distinction. There are so many people now who will be living above the shop and they’ll be working in the shop. It will be a natural blend of the two going on, and I wondered what we’d do in that situation.

I was also interested when I read clause 12, because it says, basically, that if you don’t have these things, you’re a domestic contract, or it seems to default to one, and that’s a genuine question. Is that the intention? If you don’t get this certificate, does that mean, even if you are a business—so if you were a big business, if you’re quite a big enterprise and you didn’t have those things, would that mean you default straight into being a consumer contract? It says in that part that you aren’t a consumer insurance contract if you’ve got these things. What if you don’t have them but we wouldn’t think of you as being a business? That’s a very genuine question: is it the intention that it falls back to a default of it being a consumer contract of insurance, or not? It’s a genuine question.

I would love to know the answer, but I’d really, really like to know what the Minister thinks about the validity of the argument that small businesses are really much more vulnerable. They’re a very different kind of thing from the large businesses in the country, and it’s very dangerous to put them all in the same basket in this situation. Has there been greater consideration of a more subtle approach, and would he be open to an amendment now which suggests that we could draw a line there which says that the small businesses were actually covered by this in the same way? I am concerned that we have not been nuanced enough.

The other thing I had asked about was whether there were any submissions on that basis—whether people had brought evidence to the select committee. I’m sorry that I just wasn’t present on it, and it’s something I genuinely think we need to look at. It’s much, much greater protection for our small businesses in areas like this and beyond. I think we’ve, basically, left them to the wolves a bit, and it’s not OK. Thank you.

Can I just say that, at this stage, I’m aware there’s a large number of amendments here. If members indicated as they stood up at the start that they had a number of amendments they wanted to speak to, the Chair will indulge that, and with question and answer—again, relying on both parties to be part of that. Just as a suggestion.

No, that’s very useful. Thank you, Mr Chair—and you’re right. Certainly in respect of the amendments that I’ve tabled, I’ve got a table of them all here so I can go through them in an orderly fashion.

The next amendment I want to talk about is an amendment to clause 12. Clause 12 is actually quite unusual because it talks about a certificate under which, essentially, the policyholder certifies that this contract is not a consumer contract. I’m always troubled when you’re doing some consumer law—because this is consumer law in many ways—and then you have a cross reference. Once again, it’s a little bit critical of the Parliamentary Counsel Office because, if you read the framing of the certificate, “(a) the policyholder (P) has given a certificate for the contract under section 446T(1) of the FMCA”. I mean, this is clause 12. And then it goes on to talk about sections 446T(2), (4), and (5) of that Act. Now, that’s actually the Financial Markets Conduct Act 2013, I understand. To save ink, presumably, they’ve called it FMCA. But the section itself tells you very little about the certification process.

It may be that, you know—because I’m not an expert in the Financial Markets Conduct Act, although I know a little bit about it. My real concern, though, and what my Amendment Paper goes to—

💬 Hon Andrew Bayly: This is your amendment to clause 12?

This is my amendment to clause 12. My point is that—Minister, thank you for seeking that clarification—an insurer would be almost silly not to seek certifications even where the contract is not really a business contract; where it’s a consumer contract.

My first question—for which I imagine you need advice; I certainly do—is, can the insurer simply say, “Please sign this certificate”, even if the contract is clearly one for domestic purposes, and would that then turn it into a non-consumer contract? And, if that’s the case, then surely we need to adopt my proposed amendments, which is, firstly, and I think this is important, that the policyholder understands the nature of the certificate. If we’re getting a dairy/house contract—one building—and the distinctions are significant, has the policyholder not just been given a document but do they actually understand it? Is it conveyed to them in words that are appropriate to them, which is part of the theme of this Act?

The second point, and this is the really important one, is that the certificate is not manifestly false. Now, if the arrangement is clearly a domestic one, surely it would be wrong to be able to turn it into a non-domestic one—a non-consumer—simply by a certification. And, for the life of me, I can’t navigate and find something that assures me that that kind of skullduggery can’t occur. If you think of it, we’ve talked about superyachts before when we were talking about gang patches. If I go and insure my superyacht, it’s actually domestic because it’s a pleasure craft—I don’t have a superyacht—but the insurer might say, “Well, that’s a $1 million boat. I want that to be a commercial contract, for my own commercial reasons. Please sign on the dotted line.”, and it might be the only marine insurance I can get, given my sailing record. Now, is that permissible or is it prohibited? If it’s permissible, we need my amendment. I’d appreciate an answer to that. I see you’ve got one.

I am distressed to think that the member might be having deep concerns over this clause 12, so I want to put his mind at rest. His proposal to clause 12 is, essentially—the answer is it’s already addressed, Dr Webb. “Section 446T(2), (4), and (5) of [the of the Financial Markets (Conduct of Financial Institutions) Amendment Act (CoFI Act)] applies for the purposes of [clause 12].”—these provisions already cover requirements to direct an insurance certificate is not false or misleading in a material particular, and that the policyholder understands it. There is an absolute obligation that the insurer must make sure the policyholder understands it and it can’t be false under the CoFI regulations, which I know the member was deeply involved in when he was Minister.

I just want to turn to Dr Xu-Nan’s comments. He raised the issue of someone owning multiple properties—it took 20, 30, whatever. Now, on classification, I would have thought that was quite a substantial business, but you talked about contents and I think this is where we need to understand the difference between business and a householder, or a consumer and a non-consumer or a commercial operation. Obviously if, as an individual, you’re wanting to get household insurance on your house, you will have contents insurance that will cover what you were talking about—couches, all that sort of stuff. If you’re a business and you own multiple—20, 30, 40—properties, you’re more than likely to have insurance over your furniture and fittings, which is the technical term that would be used in a business-type contract.

There are different ways to look at it. As I said much earlier, clause 10 is quite clear what a consumer contractor is, and then by definition everything outside that is non-consumer—i.e., it’s commercial. We did consider an approach around looking at small businesses as a separate sort of aspect to it, and I know the member Helen White talked about this too. The feedback we got was that the types of policies that businesses—albeit small, and some, we are talking a very grey area, are very small. Where their policies are, essentially, of a commercial nature, and it’s pretty easy to understand those, then they’re naturally more complex and they’re subject to a different rule. That’s the definition we took.

You also asked: do other Acts have an equivalent to section 11? Just answering your question directly, Dr Xu-Nan: yes, but this is because definitions are subjective and it turns on the intent of the consumer. We think that using a definition—I’m talking about intent of people—is a very poor way to approach providing legislative certainty. That’s why we have adopted a very objective measure. Then there is certainty if there is a dispute and it goes through the court or wherever it might be. So it’s been quite deliberate and, basically, the feedback was in line with what we’ve suggested and put in this bill.

I call the Hon Dr Duncan Webb, but can I just say that—sometimes I feel like a little forlorn hope here—if we’re going to get these conversations going that we attempt to make the committee stage do, can we just try not to make the five minutes a target, because that way we can indulge all members. If we’re going to do five-minute calls each time, it makes it quite difficult. Just as guidance to the members, I say.

I cannot imagine this particular Chair ever being forlorn, but I will therefore—

CHAIRPERSON (Greg O’Connor): Keep going, Dr Duncan Webb!

—do my best to avoid it. No, that’s a fair point. I’ll have a quick statement. Just moving on to kind of Subpart 1 proper now, which is where it starts talking about the duties themselves.

💬 Hon Andrew Bayly: Which amendment?

I’m moving on to clause 14.

💬 Hon Andrew Bayly: 14?

Yeah. I’ve got a number of amendments, but talking first about proposed new clause 14(4), it’s actually around the onus. This is always, when you are making allegations of dishonesty or fraud—whatever we’re going to land on at the end of the day when we talk about this—it’s clear that it’s a civil case. Therefore, the burden of proof is the balance of probabilities. My amendment, which I’m sure you’ve read, recognises that. But, at the same time, you’re making a very serious allegation. The insurance cases have always had a much more nuanced approach and take the view that, yes, it’s balance of probabilities, but that balance takes into—so this proposed clause 14(4) takes into account the seriousness of the allegation.

We shouldn’t lightly assume that people, for example, burn down their own house for the insurance proceeds. That’s a very serious allegation to be made, and you would need compelling evidence to discharge the onus of it, even on a balance of probabilities, given the seriousness of that allegation. Now, that kind of theme doesn’t appear anywhere around the discussion around fraud and dishonesty and what have you. My proposal—and I’m just going to finish real soon—is that we add a clause 14(4): “Where there is an allegation of dishonesty”—using your language—“the onus of proof is on the insurer”—I think that’s clear—“and the burden of proof is that the court must be satisfied on the balance of probabilities, taking into account the seriousness of the allegation and the gravity of the consequences.”

Just really restating what is a common law position, but with a bill like this, which is, essentially, intended to be a code, my suggestion is we need it there and there is a real danger that the courts will lose sight of that. Thank you.

Bring on to the other bits—you’ve got three in clause 14.

💬 Hon Dr Duncan Webb: No, no—I was told not—

All right, the answer—I’m surprised the member doesn’t want to talk; he’s got three changes to clause 14. I think he could have covered all three of them. Maybe I’ll just help him.

I’m surprised that you picked up subclause (4) as the one to debate, which is about this issue of onus of proof and what would happen in the court. As the member knows as a Doctor of Laws—of anyone in this House who would understand these concepts—if there is a matter taken to court, the normal civil burden of proof would apply and the court procedure would apply. There’s no need to make this change. It’s a redundant clause. He, of all people, should know that.

Now, I want to pick up on his other two amendments in the same clause, subclause (5). He suggests a new insertion about failure to answer a question or giving an obviously incomplete answer. Again, the bill addresses this in cause 15 in a manner that reflects the intent to place the onus on the insurer. This is a key part of the bill. I don’t think Dr Deborah Russell appreciated this earlier in her questions—there is an obligation on the insurer to make sure they ask the right question. In respect of this, the onus is on the insurer to take additional steps if a non-answer or obviously incomplete or irrelevant answer is given. Our bill is therefore more user-friendly.

This is a key tenet of the bill—one of the three crucial things about this bill. First thing: policies have to be presented in easy-to-understand language, and we’re getting rid of all the requirements of difficult terms and conditions that are stuck at the back that no one reads, which is the issue we’re trying to protect consumers from. Secondly, we want to make sure that it is the obligation and requirement of the insurer to ask the right questions of the potential policyholder, not for the policyholder to try and to understand what the intent of the question was—i.e., do I have to record that I had my tonsils out when I was five, when I’m filling out a general health application? And the third major component of this bill is that we want to make sure that if there is a dispute, there is a proportionate, recognised approach to dealing with it. The issue that the member has raised in subclause (5) is much more consumer-friendly.

The third submission, or Amendment Paper, that the member has provided, subclause (6), raises the issue about if a statement—where it’s not a representation, where the insurer was not misled, etc. It is not clear why this change is necessary or how it’s intended to change the operation of the duty, given an insurer would not have the remedy anyway, unless they could prove that they would have not entered into the contract at all or would have only done so on different terms—a crucial part of that third element I’ve just talked about. Thank you. Hopefully that’s helpful for members.

The time has come for me to report progress.

Progress to be reported

House resumed.

Madam Speaker, the committee has further considered the Contracts of Insurance Bill and reports that it has made progress on the bill. I move, That the report be adopted.

Motion agreed to.

Report adopted.

The House is suspended and I will resume the Chair at 9 a.m. tomorrow for the extended sitting to consider private, local, and members’ orders of the day.

Sitting suspended from 9.56 p.m. to 9 a.m. (Thursday).