Contracts of Insurance Bill

Members, the House is in committee on the Contracts of Insurance Bill. We come first to the debate on Part 1. This is the debate on clauses 3 to 9, “Preliminary provisions”, and Schedule 1. The question is that Part 1 stand part.

Thank you, Mr Chair. I’m very honoured to get this call in front of my colleague Arena Williams, who, I know, has a lot to say on this matter. I have a number of Amendment Papers on the Table, as does my colleague Arena Williams and others in the Chamber. What I propose is to work through them pretty methodically, and, essentially, clause by clause. I must say—and I don’t intend to take my full call when we speak about this—the first thing I want to talk about is the purpose clause, that is to say clause 3.

Whilst the purpose is set out there—fine, in that kind of fine sort of way that the National Party does in terms of saying that we have an efficient insurance sector—what it doesn’t actually do is reflect the big improvements of this bill for consumers. My Amendment Paper, which is on the Table, suggests the insertion of a new subclause 3(c). I know that the Minister’s been busy today, but I’m hopeful that he will take every single one of these Amendment Papers with the gravity and seriousness that they deserve, because every one of them is a genuine improvement.

This suggestion is that we insert a purpose which actually reflects the important consumer interest in this bill, because this bill, as we will see later, carves off consumer insurance contracts and arrangements and makes special provision for them in a number of respects—some of them bear scrutiny as well. What we do need is a recognition that one of the purposes of this bill is to do exactly that. My suggested wording is that it’s a purpose of this bill “to protect the interests of consumers under insurance contracts when they are entered into, throughout their duration, and in the claims management and settlement process.”

Now, the Minister might want to put his own Amendment Paper in which changes that wording or perhaps even curtails it—it wouldn’t surprise me—but the overriding theme is that this bill is, in a large part, about protecting consumers’ interests. I do think, though, it is important to recognise that that protection isn’t just in the process of entering into the insurance contract, but also what you might call the claims management process where the insurer has to accept or reject a claim. For consumers, that’s a critical part of the insurance contract process. Also, the kind of claims management—that is to say the settlement aspect of the claim that the insurer comes to, in a timely manner—and I’ve seen the work the Minister’s done on reasonable time; different from the work that other Ministers have done, but still progress nevertheless—that’s also an important part of it.

I’d be interested in the Minister’s comments because he did have a good bill—a draft bill—earlier, and a member’s bill in this House which still lies on the Order Paper that, in fact, had a purpose clause that didn’t look a million miles from that. I’m wondering why he got his red pen out and said that that wasn’t a suitable part of the purpose clause, because, clearly, consumers are a critical part of this reform and that’s one thing we can absolutely agree on. I’d be interested in hearing the Minister’s comment on that.

Thank you, Mr Chair, and for that contribution from the Hon Dr Duncan Webb. It’s an interesting thing he’s raised. My comments are that the bill’s purpose statement already recognises and balances the interests of consumers and insurers with its focus, firstly, on promoting “confident and informed participation of insurers, policyholders, and other participants in the … market” and, secondly, by ensuring “that the [provision] included in contracts of insurance, and [insurance] practices … operate fairly.” I consider the framing appropriate and that an express consumer protection aim would make the provisions unnecessarily complicated and unbalanced.

Thank you, Mr Chair. Before I come to the specific amendments that have been put to the Minister and have been on notice, there are only two which, really, the Labour Party has indicated it will die in a ditch over. The Labour Party has supported this legislation until this stage, but we have flagged at the first and second readings and in the committee that there are two issues which must be addressed in the current drafting. That is because consolidated insurance law in New Zealand is well overdue, and we must have law that makes it both clear and fair for insurers and consumers alike. The key to good law in this area, we can all agree, is good faith and that policyholders who make honest mistakes should not find themselves without cover as a result of those mistakes.

The two amendments, which have been published for some weeks now for the Minister’s consideration, are about these simple things: where policyholders who make a mistake with their disclosures should not be denied cover, and the changes that the Finance and Expenditure Committee has made to the bill that did away with the word “fraud” and used the less clear “dishonesty” standard. If the Minister can give a clear assurance tonight that he will vote in favour of the amendment which goes back to the bill as drafted—which used the clear “fraud” standard—then happy days; there’s support for that, because that was what was presented not only to the committee at the beginning, to the submitters who submitted upon it, but it was also what was taken to Cabinet. That’s the clearest standard, that’s what we can agree on in this House, and that’s what we should use.

The second point is that insurers should complete claims in a timely manner. As my colleague the Hon Dr Duncan Webb has said, this bill as it is currently does advance this somewhat. However, it is not fair, as it is currently drafted, to consumers, who are getting a bad deal out of a piece of legislation which could have solved a huge problem for very vulnerable insurance consumers. When there is a time delay, people lose money. They lose hope in the system—people who are homeowners who have suffered from really long delays in situations like the Christchurch earthquake—and so that is something which needs to be addressed. We should use the approach that is in the Amendment Paper in my name, which has been published now for a number of weeks, which everyone has been able to consider, which is a considered approach that would allow a proper framework for that. If those two things can be agreed, we would be happy to support this bill as amended.

Also, I want to acknowledge the very hard work that went into it from the select committee. A number of changes were made which do advance the position in some ways. We have some specific questions around the new powers around genetic testing. This was supported by Labour members at the committee stage, and I will elaborate on this a little bit later when we come to the appropriate part. I want to be really clear with people following along on this—because we know, as a committee, that there were a number of submitters who were very, very passionate about this issue—that what was reached was a compromise, to take a cautionary and safe approach to restricting the practice of genetic testing being used by insurers in New Zealand, similar to the UK model. However, Minister, things have changed since the select committee reported back. Australia has now moved to ban the use of genetic testing by insurers with a five-year period and then a review.

We will put questions to the Minister about whether his approach has changed, given the change in context globally, and the importance of this issue for a community of people in New Zealand who are watching this with interest because it is incredibly important to them.

Thank you, Mr Chair. Just also to signal, too, Mr Chair, that when we are going through this bill—because this is quite a hefty bill, and it’s quite substantial—we will be taking this bill part by part and, to the best of our abilities within each part, subpart by subpart, as I’m sure we will go on in due time.

The first question I have for the Minister is around clause 5—and particularly when we are looking at the interpretation and definition. Understanding what the submitters were requesting and also what the Finance and Expenditure Committee has done in terms of adding additional specification to the definition of specified intermediaries, I’m curious to know—drawing on a later section, but I think it’s important to mention it here—under Part 4 clause 120, it gives specific definition to “broker”. When we’re looking at the concept of a broker also as an insurance intermediary, I wondered if the Minister wouldn’t mind clarifying why that definition—particularly when it comes to insurance intermediary—isn’t put earlier on, as part of clause 5, to encompass the entire legislation, as opposed to being left independently later on, in Part 4. And, of course, once we get to Part 4, I will have subsequent questions around brokers. I think that is one of the first questions I have: when we are looking at this idea of specified intermediaries and the interaction with other forms of intermediaries, particularly in the context of a broker.

Another thing that I want to mention—which I know the Hon Dr Duncan Webb has an Amendment Paper on, which I’m sure he will mention later on—is regarding clause 7, and particularly around the conflict of laws. Now, understanding that, as part of the select committee process—based on the information that is given at the beginning, in terms of the explanatory note—under subclause (2), there’s been a change from “contract of reinsurance” to “non-consumer insurance contract”. There is a whole section on whether a contract of reinsurance should be considered as insurance for the purpose of this Act—the contract of insurance in the first place—but I wanted to understand from the Minister: when we are looking at, in this case, non-consumer insurance contracts, has there been any consideration post this being brought to the House by the select committee—if the Minister has received any advice on the proportion between what would be applicable under consumer insurance contract for that clause 7(2) and what would be considered the proportion of non-consumer insurance contract? I would presume that by not having the consumer contract there, hopefully it is quite a small proportion of it. I would like to know if the Minister has any more details around that.

I’m seeking to debate a series of short questions with the Minister. First, will he support my Amendment Paper 110? If the Minister can’t answer that, will he support my Amendment Paper 111?

CHAIRPERSON (Greg O’Connor): Are we in the right part here?

ARENA WILLIAMS: I’m seeking an indication from the Minister, because that will impact the way that we debate Part 1.

CHAIRPERSON (Greg O’Connor): Well, you’ll probably need to draw that out as to why this is pertinent to this part.

ARENA WILLIAMS: OK. Thank you for the opportunity to discuss this. The reason why I have asked the Minister to indicate whether or not he will be supporting the Amendment Papers, which have now been published for three weeks for his consideration, is that these are make it or break it issues for bipartisan support for his piece of legislation. Bipartisan support for something this significant to New Zealand’s insurance law is important, but it was also an important part of the Finance and Expenditure Committee’s consideration of this bill, because there is support for reforming insurance law in New Zealand. For too long, it has been scattered across multiple Acts and in case law. When we debate Part 1, we’ll come to a number of things that Labour members do not agree with, and they would not have been the changes that a Labour Minister would have proposed to this House, and indeed were not the changes proposed by the member whose member’s bill this is a very similar bill to.

However, we can accept a package of changes which advances the position for not only consumers but insurers in New Zealand as a whole, and it is important to Labour members to have an indication from the Minister of whether not only what he brought to the committee but whether what he brought to his Cabinet colleagues is something that he will continue to support after submitters have lined up at the door and asked for their special interest changes. These are industry members, these are lawyers who represent the industry; this is the Insurance Council of New Zealand who have asked for special changes and they have arrived in the bill. I’m asking him, on these two points, will he commit to going back to what he took to not only the beginning of the committee process to this House, to the Parliament, but also to his Cabinet colleagues, or are we going to debate every single clause in Part 1?

Thank you, Mr Chair. Unfortunately, I’ve got to inform the member that we won’t be changing and adopting the proposals from the member. You raised two substantive issues, and I acknowledge that—one around good faith and the second one is the use of the term “dishonestly” rather than “fraudulently”. I just want to deal with the second. Rather than just getting in a whole lot of discussions around various parts, I’ll just deal with the one around “dishonestly” rather than “fraudulently”.

The reason why we adopted “dishonestly” is that first of all, people don’t realise that the definition of fraud has a different meaning whether it’s in a criminal sense or whether it’s in a civil sense. The member may well be aware of that difference or that nuance, but many people are not.

The criminal standard of fraud describes crimes for personal gain or depriving someone of something with deceit. This implies criminal behaviour proved to a criminal standard of proof, which, of course, is a higher standard which would not be appropriate in this respect. The civil law standard of fraud, however, as we are focused on, is wider. In civil law, fraud is knowing a statement is false or recklessly not caring whether it is correct or not.

Now, like the bill, the UK legislation uses “dishonestly” to discourage deliberate wrongdoing. The UK Law Commission, I’ll remind the member, has advised against the use of “fraud” because of the confusion as to its different meanings, as I’ve discussed previously. “Dishonest” is a high threshold. It would require intent and not capture a consumer who has simply been careless or made an honest mistake. That is why we’ve adopted the approach of using the word “dishonestly” rather than “fraudulently”.

That’s quite a lecture on dishonesty from the Minister there. He seems to know a lot about it. My question actually goes to the meaning of the contract of insurance—and I’m sorry if I’m keeping the Minister up late; I know he doesn’t like working late.

My question goes to the question of what it is to be a contract of insurance. It’s in clause 6 of the bill. It’s really one of those borderline issues around the line between what’s a proper, legitimate commercial contract and what is, essentially, a wagering contract or a gambling contract or something of that nature. We see all kinds of contracts, and there’s a lot of grey area, because if you think about what an insurance contract is, at its very core, it’s providing a sum of money to cover the likelihood of an uncertain event occurring.

Now, when that uncertain event is an earthquake which damages my house, it makes perfect sense. When it’s someone suing me for my own negligence, it makes perfect sense. But we get into some broader issues there where the contract of insurance might be the American dollar falling below a certain exchange rate. Is that a contract of insurance or is that some other kind of contract? Or if you’re the owner of the Auckland Football Club and it’s raining on a particular day or it loses a particular game. Now, what if you’re not the owner of that football club? Can you also ensure that the Auckland Football Club wins or loses? Therein lies the problem: that by degrees we move from perfectly legitimate commercial arrangements into a murky field of financial arrangements where what lawyers would call insurable interests aren’t clear, and then into arrangements where, of course, you cannot ensure that a football team wins or loses if you don’t own that team. Maybe if you own them you can, but, then again, that runs into different problems.

My Amendment Paper, which is on the Table, proposes a new clause 6(4), which, admittedly—because I don’t have the entire intellectual power of the Ministry of Business, Innovation and Employment behind me, unfortunately—is only an estimation, perhaps, of what the best definition would be. It says that it’s not an insurance contract if it’s an arrangement in the nature of a gambling contract in which the policyholder has no interest in the outcome of an uncertain event other than by virtue of the contract. Then, it’s not a contract of insurance. Now, that’s tricky because there are a whole lot of arrangements—and the foreign exchange and futures arrangements are good examples of them—where you’re actually putting money on the table on the basis of movements in financial markets. That is extremely similar to a gambling contract and, arguably, part of some of the problems that our financial markets have in terms of the spirals, the vicious cycles, that they get into.

I’m interested in the Minister’s view on whether the definition of “insurance contract” actually is certain enough—and my view is it isn’t—to exclude arrangements which are either commercial but clearly not insurance or, in fact, tantamount to gambling and therefore should not get the protections afforded by this piece of legislation.

Well, thank you. I didn’t think we were going to be talking about US dollars and football, but I note the efforts of the Hon Dr Webb in his proposed clause 6. Unfortunately, I’ve got to take the wind out of your sails, Mr Webb, because this provision is already included in the bill. Just for his edification, clause 6 already incorporates by reference exclusions in section 7(3) of the Insurance (Prudential Supervision) Act 2010, which covers gambling. There’s no need to make this change. I know what you’re trying to achieve, but, actually, it’s already covered, and that’s why we won’t be picking up that element.

Also, I just want to return to Dr Lawrence Xu-Nan’s question earlier about clause 7, following on from clause 6. It’s unclear why this would be useful, what’s been proposed under clause 7. The existing wording is based on and is consistent with the existing provision in the Credit Contracts and Consumer Finance Act, as you’re well aware, and that provision has operated for well over 20 years with no problem.

Thank you, Mr Chair. I want to ask a little more about clause 7. I’m rather interested in this decision that’s been made to break with the tradition of allowing a forum conveniens, or a choice of forums. It seems it’s quite a sensible one, but I’d really like the public to understand what you meant by it. You’ve made a decision here for some contracts to be subject to that choice and other contracts not to be able to be subject to that choice. I presume it’s because of the power differential in that situation and that your consumers have a lot less power in that situation, and that a forum conveniens that was somewhere else would be actually impossible for them to resolve a dispute in, etc.

I’d quite like to tease that out in terms of that, because the public won’t really understand those clauses and yet they have become more and more common, and they have become a device for avoiding responsibility. An insurance company that enters into one where, in fact, there’s a place that is a long way away—that is going to become problematic for a New Zealand consumer. I’d love you to elaborate and tell us why that is there and why there is the distinction in that, because there was a recommendation, as I understand it, to separate off the non-consumer contracts and allow a choice of forum.

Mr Chair, thank you for the opportunity to now begin some questions on Part 1. I’ll take the Minister to clause 7 on page 13, and, as my colleague Helen White has raised, there are some issues with the conflict of laws provision. This is something that the Finance and Expenditure Committee dealt with extensively, and it will bleed into Part 2 because that is where the definition that is relevant here is to be found, but the questions that I have on the conflict of laws also relate to the reinsurance part of Part 1 and the intermediary parts, and so I’ll come to that in a minute.

Firstly, on the conflict of laws, I want to ask the Minister whether this amendment that happened at the select committee is clear enough for him to be comfortable with it being limited to only contracts of reinsurance by that amendment to clause 7(2), which limits subclause (1)(b) to non-consumer insurance contracts. The reason I ask is that, in this situation, it envisions that because reinsurance contracts are sophisticated commercial arrangements between commercial parties who will usually have quite long and well-negotiated commercial contracts, in their contracts they are well set up to negotiate which forum and whose law should apply to their contract. They might have a provision in there which says that the Singaporean or the UK law will apply, they’ll also pick a jurisdiction for any disagreements to be arbitrated in, and then they might pick another jurisdiction, if that arbitration fails, to then commence litigation proceedings, should the dispute not be resolved at that point.

Why I ask is because, while this was worded to say that the ability in a contract to opt out of having the New Zealand law apply was where it was very specific that that was only for contracts of reinsurance, we’ve now opened it up to non-consumer insurance contracts. I have asked the Minister whether he is confident that this will be limited to contracts of reinsurance, or is it his intention that it will apply to other sophisticated commercial arrangements between parties, because the select committee’s deliberations on that were unclear.

The next question is: what happens if two parties who are, say, parties to a reinsurance arrangement, or the kind of sophisticated commercial insurance arrangement that the Minister might otherwise be envisioning, have not entered into an agreement about which jurisdiction’s law will apply? Do the normal conflict of law provisions then apply? Will one party need to prove that their domestic legislation applies to suit them? Given that this provision has the sort of presumption here that if you are a sophisticated commercial party and clause 7(2) applies to you, then it won’t, the question is: does that put the commercial party based in New Zealand at a significant disadvantage, because the legislation now has a very clear provision that was intended to provide for arrangements that did negotiate which rule would apply? Are we now in a position where New Zealand insurers who do not include those provisions in their contracting terms are unable to prove or are somehow fettered in proving in a court—and it might be Singapore or it might be the UK or it might be New Zealand—that the jurisdiction that they prefer, which is probably the New Zealand jurisdiction, should apply?

I also wanted to ask him more about whether it is his intention that this provision will apply to sophisticated contracting parties who opt to have a different jurisdiction’s insurance law apply to them, and then where is the line between what will be considered in a consumer insurance contract for this and in a non-consumer insurance contract for this. Given that there is a definition that is set out in Part 2, the problem here is that this provision seems to stand alone. Clause 7 just assumes that every arrangement between these sorts of parties will deal with the jurisdictional issue, and that’s fine in a perfect world, where every commercial party comes to these negotiations on an equal footing, but not in situations in the real world, where they don’t.

Thank you. Just addressing Helen White’s question and also the last member, Arena Williams’ contribution around clause 7.

First of all, I think it’s important to state that the bill is about protecting consumers and the view that commercial partners should be allowed autonomy to choose the law that governs the contract that they are operating under. We’ve received expert advice on this issue, and I just note that clause 6 specifically excludes, as the member will know, under subclause (3)(aa) “a contract of reinsurance”, which is referred to, because, of course, that’s a commercial nature and often that will involve international parties.

For that reason, under clause 7, which was obliquely referred to, clause 7(1)(b), it, again, “would be governed by the law of New Zealand but for a choice of law provision in the contract.” You will see in clause 7(2) that that doesn’t apply to “non-consumer”—i.e., commercial—“insurance contract.” It’s actually all there for the member to understand.

Thank you, Mr Chair. I know the Minister currently holds some other portfolios which are relevant to this. Particularly, he’s referred to clause 7(2). That provides that the conflict of laws provisions do not apply to a non-consumer insurance contract. One of the challenges there that I’d like the Minister to answer is with particularly small businesses, because insurance companies aren’t all benign. When they do things like business interruption insurance, as a really good example—clearly commercial, but often held by very small businesses—if a choice of law clause in there says, “Subject to the law of Singapore”, then simply because they aren’t captured as consumers, they are then subject to a legal framework which, even if it’s legitimate and workable, is entirely foreign and puts them entirely on the back foot.

Reinsurance I get, right—that’s an international market and you should be able to assume the law and forum which is suitable between insurer and reinsurer, and there might be some other very large contracts: the New Zealand Government insuring its assets or a local council insuring its assets—hundreds of millions of dollars of assets, millions of dollars in premiums, choice of law there makes sense. But, when you’ve got a dairy owner who is insuring against material damage and business interruption, the suggestion that you’re going to get the law of the Philippines or the law or whatever jurisdiction the insurer chooses—because these are form contracts. No one reads them. We might have an expert on the law in the Philippines in the room, but that’s not likely for your corner dairy owner. That’s the first thing.

The second thing I’ll say about this is that I know this bill was handed over in pretty good shape to the Minister, but because of another bill in the House, he’s rushed it. There are a whole lot of drafting issues that still haven’t been picked up in this bill. Clause 7(1)(b) really just needs—and I’ve got an Amendment Paper on this—to be tidied up. It’s frustrating that it’s me doing the tidying up rather than him, but it really should say “would be governed by the law of New Zealand but for a choice of law provision in a contract which is enforceable.” Those three words at the end are quite important, because there are many situations where it’s actually not permissible—in a consumer contract at least, and certainly in most other contracts—to just randomly choose the law of Uzbekistan which has no connection with the contract in question. We’ve got to be careful about that.

Again, it’s just loose wording, Minister, that you haven’t really had the time or energy or attention to fix up. So if you’d tidy that up as well and pick up my Amendment Paper in respect of clause 7 that would be great.

Look, I find it fascinating—the member who’s just sat down. I think we need a dose of reality. Even in the example he quoted, there still remains a choice for non-consumer, i.e., commercial operators—dairy in his example—to choose who they will take a policy out with. The assumption is that they’re not sitting there having it forced upon them. They have a choice which policy or insurer they want to work with. I think the member is just divorcing himself slightly from reality, because that’s what happens when businesses enter into a contract with their insurer: they go through that process and they will be aware if they’re going to be subject to the laws of the Philippines or not. If they don’t want to be, they don’t have to be, and they’ll obviously choose an insurer that will provide them with the certainty they need.

I move, That debate on this question now close.

Thank you, Mr Chair. If I could, Mr Chair, ask a point of clarification from you as we’re proceeding—this is pertaining to clause 8 of Part 1, which is in relation to Schedule 1. Now, Mr Chair, normally for schedules, we’re debating them under the part which they fall under, but may I draw your attention to Schedule 1. Schedule 1 pertains to a lot of other parts—like, clause 1 of Schedule 1 refers to Part 2 whereas clause 3 refers to Subpart 5 of Part 3. I was wanting to seek your guidance, before I ask the Minister in the chair, Andrew Bayly, some questions, on whether it is appropriate to debate Schedule 1 as the part comes up rather than jumping back and forth.

CHAIRPERSON (Greg O’Connor): Yeah, well spotted. Yes, that can be debated under Part 1.

Dr LAWRENCE XU-NAN: Thank you, Mr Chair. The question I have for the Minister—and this is following up on what the Hon Dr Duncan Webb has mentioned in terms of the purpose of this particular bill. Understanding that, when we’re looking at this bill, it comes from what was originally proposed by the Ministry of Business, Innovation and Employment, and it was under a Government bill under the previous speaker, I just want to strongly support Hon Dr Duncan Webb’s amendment, particularly in terms of adding clause 3 and inserting clause 3C in this, especially around protecting the interest. Now, I understand the Minister has mentioned before that protecting the interests of consumers absolutely is a key part of this bill, and I would like to implore the Minister to consider this particular amendment as well when we’re discussing this further.

I also think, in terms of some of the other amendments, one of the amendments that the Minister has—which would be around clause 7(3), with the addition of 89(2), which is part of the amendment—tied in with the overall purpose and with the discussion that has been had around the purpose clause 3(a), around promoting the confidence and informed participation in the New Zealand insurance market. I would be keen to hear from the Minister, if he wouldn’t mind clarifying, how that confidence in the New Zealand insurance market ties into the other conversations that we’ve been having regarding other jurisdictions. Would that be something that works together well with the other clauses—and particularly clause 7 has been brought up a lot—or is that something that potentially is a lot more nuanced? I would like to hear what the Minister has to say for that. Once again, thank you, Mr Chair, for clarifying Schedule 1.

Thank you, Mr Chair. I thank the Minister of Commerce and Consumer Affairs for that remarkable explanation of subclause (2) of clause 7, because it is very unclear, and the reading, from my perspective, was that this was still about contracts of reinsurance. He has clarified that, no, this is an attack on small businesses. This is a rearrangement of contract terms so that small businesses who enter into contracts with large insurers cannot rely on the protections about large insurers opting to only arbitrate and then litigate disputes in Singapore or London.

My colleague the Hon Duncan Webb made a joke about the law of Singapore and he said, “Well, wouldn’t it be ridiculous if we chose the law of Uzbekistan?” It would be ridiculous, but what is more ridiculous is that it is completely ordinary, common practice for large insurers to have arbitration in Singapore and litigation in the High Court in London. What small business, Minister Bayly, can afford to bring a dispute about their insurance, about the timeliness of their insurance, about the payouts that they are entitled to, about the terms that they have signed up to? What small business can possibly afford to bring an arbitration in Singapore?

This is a huge departure from what this said originally, when it was only intended to apply to insurer-to-insurer contracts, where you have six lawyers in the room debating with each other for days about the terms of this contract. That is fair. It’s fair to say to the industry, “Yep, you hash it out. The Government has no place in this.” But small businesses—mums and dads around the country—will not be able to access the provisions that clause 7(2) had when it was introduced to this House, and that is a shame and we need the Minister to explain what his intention there is.

The second point that I have to make is about reinsurance generally. The Minister has clarified that section 6(3)(aa) excludes the contract of reinsurance from the meaning of a “contract of insurance” generally, but we still need some clarification about if we’re using the provisions that were intended originally to only apply to contracts of reinsurance here in these arrangements—is that then echoed elsewhere? That wasn’t the understanding that I had when we were working through this with officials.

I also want to understand, from the Minister, where did this change come from? Which submitters submitted to the Finance and Expenditure Committee? Which submitters made representations to him that large insurance contract provisions—the provisions which were intended to only apply insurer to insurer—should now apply insurer to small business? Who might it have been that came to the Minister and said, “Gosh, I will be losing out on my profits here if I have to look out for the little guy.”? Who was it that made representations to the Finance and Expenditure Committee and the Minister to suggest this change, and why did the Minister take that submission on board?

Thank you, Mr Chair. I thank the Green member Dr Lawrence Xu-Nan for pointing out that we’re on Schedule 1 as well as Part 1, which is the transitional provisions. In many cases, transitional provisions can be a bit ho-hum, but in fact in insurance contracts they’re anything but ho-hum, because of the long time lag.

One of the things we agree on is that the disclosure rules—the basis upon which an insurance contract can be avoided on the basis of a mistake made by the insured—badly need changing. Now, clause 1 of Schedule 1 is headed and captures what it means: “New disclosure duties apply to new contracts and variations”. The fact of the matter is that, in three months’ time, there may well be an insurance situation—life, fire, general—where three or four years ago there’s been a mistake made by a consumer. This is all very nice, this Contracts of Insurance Bill, but that disclosure duty is not the new disclosure duty. The measure of that behaviour under clause 1 of Part 1 is not the new disclosure standard; it’s the old one.

I mean, that’s prospective and insurers no doubt would bleat that if we said, “Oh, no; we’re going to change the law so that the disclosure duty in 2020 is the new disclosure duty.”, it’s called retrospective. I think there’s a good case for retrospectivity here, and seeing as this Government doesn’t seem to worry much about retrospectivity in respect of, say, three strikes or the marine and coastal area Act, it strikes me that there’s a very good case here to say the test applies in respect of any claim made after the Act.

Now, if you’ve got litigation and so on and so forth, or disputes going on now, if your claim’s been made, that’s classic crystallisation. Your rights are crystallised. It’s the law applicable when you made your claim. But in this case—because this has got a long, long tail; for example, misrepresentation of life insurance—those misrepresentations and mistakes could be 30 years old, so a mistake made today will have an impact on a death or a claim under a life insurance policy made in 30 years’ time. This rule will come into play very gradually indeed, and in fact its whole utility is wildly undermined for as long as insurers can go back in history and dig around and find a non-disclosure or other misrepresentation or mistake that was made prior to the commencement of this piece of legislation.

If ever there was a case, quite apart from the offensive pieces of legislation where retrospectivity is being used by this Government, it’s here, because we know the law as it currently stands is an ass. Saying, “Well, we’ve tidied it up. Now, we’re not going to interfere with claims that are made already, but if you make a claim after the Act comes into force, the new misrepresentation test applies, not the old one.”—that’s a far better transitional provision than one which will see people’s claims unfairly denied. That’s the key point—that it’s unfair. We all recognise it’s unfair—unfairly denied until the final tiny tail has disappeared, which could be 30-plus years down the trail.

I find it extraordinary that a person who has a Doctor of Laws is proposing retrospective operation under clause 1 of Schedule 1. The member must know that there’s a well-known legal principle that people should be able to hear court cases based on the facts at the time contracts were entered into.

I think the member needs to be aware and cognisant of the fact that by introducing a retrospective arrangement, as he proposed, it cuts both ways—it cuts both ways. It may work in the favour of a consumer, but it may also work in the favour of an insurer. I think it’s a dangerous precedent to be suggesting. That is why we propose lead time for the operation of this. We will hope to bring this bill in—as the Minister will have regulation-making powers to be able to bring in early parts of this—but we want to make sure that the arrangements come into force when people have time to consider it and the policies can be adapted. That is a key principle to it. I am very surprised about the suggestion from the member.

Secondly, I just want to go back to Ms Williams’ comment around clause 7, Subpart 2. I note that this change to this clause was unanimously agreed to by the committee, including the member herself. Secondly, expert submitters on conflicts of law advised that this was the best approach to allow commercial parties to have autonomy to choose their own governing law and which is consistent with international best practice. I am sure that the member listened intently during that process when she unanimously agreed with the rest of the select committee to that change. I find it quite surprising to find in the middle of a committee of the whole House that she is trying to relitigate something at this late stage.

I move, That debate on this question now close.

Thank you, Mr Chair, for this unexpected honour. I just wanted to take a call because I—

CHAIRPERSON (Greg O’Connor): Did the member not seek the call?

FRANCISCO HERNANDEZ: No, I did. I did. It’s still an unexpected honour, none the less. I always relish these calls. I felt like I had to take a call because the word “Philippines” was mentioned quite a bit. I wanted to make sure to be representing these issues.

I had a question around clause 6(2), the clause around the “uncertain event”. Now, I think the thing about uncertain events is that they’re uncertain by definition, but are there degrees of certainty? Is there some sort of matrix or some sort of sliding scale that makes an uncertain event more uncertain than others? And what is the threshold, basically? I ask this question because it’s something that we will have to deal with quite a little bit more with, I guess, the advent of climate-related events and climate-related natural disasters. I’m just wanting to acknowledge that there was one such event earlier during the month in Dunedin, and I think it was a time which was very sad for the city, but, in a sense, it was something that was expected but also unexpected at the same time. There are degrees of uncertainty, so what is the actual threshold? I think it’s really important that we consider this question and it’s really important that I’m wanting some clarity from the Minister on this, because I think it will help guide the interpretation of certain provisions in this legislation.

Another question that I had around this aspect of uncertainty is: what if there’s differing forecasts or differing kinds of prognostications? For example, if the regional council had one set of hazard maps—a shout-out to the Otago Regional Council—and, for example, the Natural Hazards Commission or central government had another set of hazard maps. If there’s an aspect of uncertainty and there’s evidence that kind of points both ways, is there a sort of hierarchy where certain types of information take more priority compared to others? I won’t belabour the point. I’m a Green member, so I think I’ll leave my contribution at that. I’m looking forward to an answer to this question. Thank you, Minister.

Thank you, Mr Chair. Well, what a remarkable contribution to this debate from this Minister in the chair, Andrew Bayly, who is acting surprised about why Labour members are not supporting his bill. Let me briefly explain. This Minister has not been straight up with New Zealanders about the changes he intended. He took a bill to Cabinet, there were some changes, then he took it to the first reading of this Parliament and then there were some changes, and then he took it to select committee and then there were some changes, and then we’ve come to this committee and Labour members have said, “Look, at every stage you have introduced more changes which have punished the little guy, which have gone against the very intention of this bill, which was to protect consumers, and at every stage it has got worse and worse.”

We can support a package of changes which would revolutionise New Zealand’s insurance law, because it is well overdue, but we cannot support two things. I put those things to the Minister, and he refused to change them. Now, they were changing them back to what his Cabinet colleagues agreed to. They were changing them back to what this Parliament agreed to. They were changing them back to what was put to the hundreds of submitters who came along and gave us their opinions in select committee. That is why I am now asking him questions that he is uncomfortable with answering, about why he is putting small businesses through pain in his changes to clause 7(2), because small businesses will wear pain because of these changes that he has proposed, that are only to benefit large insurers.

I have two questions for him about that. Has he considered the effect of the very broad change that he has made on consumers for professional businesses that are really about consumers? The question here is about professional indemnities. When you insure lawyers or accountants, you’re really insuring the people who go to lawyers and accountants for their professional advice. These are really insurances for the littlest of the little guy, because in those situations you are very vulnerable. You are completely reliant on the professional advice of the person you are paying to give you advice. Insurance contracts in these scenarios make sure that the person who is giving the advice, the person with all the power in this scenario, is able to pay out if they have caused material damage.

Is it a non-commercial contract? Is it the kind of contract where the Minister has stood in this House and said, “No, these protections shouldn’t apply, because commercial parties should be able to negotiate amongst themselves.” If the little guy who goes to their accountant and gets dicked out of hundreds of thousands of dollars in their life savings, which happens over and over again in New Zealand, is that person, who might not be insured or might not be able to access insurance because of these provisions which this Minister has inserted into this bill at this late stage—

Look, I’m sorry to interrupt the member, but the time has come for me to report progress.

Arena Williams: I was just getting started!

CHAIRPERSON (Greg O’Connor): That was what I feared, Ms Williams.

House resumed.