Insurance Law FAQ

The duty of utmost good faith requires both insurer and insured to act honestly and fairly in their dealings with each other. It applies before and after formation of the contract and is a term of every contract of insurance under section 13.

Before entering a contract, an insured must disclose matters known to them, or that a reasonable person in the circumstances would know, to be relevant to the insurer's decision. For consumer contracts, the duty is modified to match the insurer's specific questions.

If the insured does not comply with the duty of disclosure and the insurer would not have entered the contract or would have entered on different terms, the insurer's remedies depend on whether the non-disclosure was fraudulent (avoidance) or innocent (proportionate reduction).

A consumer insurance contract is one obtained wholly or predominantly for personal, domestic, or household use, with a specific statutory meaning. Consumer contracts have a modified duty of disclosure — the insured only needs to answer the insurer's questions honestly and reasonably.

Yes, if the exclusion is clearly worded and applies to the claim. But insurers must respond to claims within a reasonable time, cannot rely on exclusions not stated in the policy, and must comply with their duty of utmost good faith when denying claims.

Subrogation is the right of an insurer, after paying a claim, to step into the insured's shoes and pursue recovery against a third party responsible for the loss. The Insurance Contracts Act restricts subrogation against employees and family members in some circumstances.

Where multiple policies cover the same loss, the insurers typically share the loss in proportion to their coverage. The principle is equitable and subject to express policy terms (such as "other insurance" clauses) and the statutory rules in the Insurance Contracts Act.

Start with the insurer's internal dispute resolution process. If unresolved, consumers and small businesses can take the matter to the Australian Financial Complaints Authority (AFCA), which provides a free external dispute resolution service and can make binding determinations up to monetary caps.

AFCA is the Australian Financial Complaints Authority, the free external dispute resolution scheme for financial services complaints (including insurance). AFCA can make binding determinations in favour of the complainant up to compensation caps, but only the complainant is bound to the extent they accept.

Public liability insurance covers the insured's legal liability to third parties for personal injury or property damage. It is the core insurance for most businesses and is often required by commercial contracts, landlords, and councils as a condition of doing business.

Professional indemnity insurance covers a professional's liability for negligent acts, errors, or omissions in providing professional services. It is usually claims-made, meaning the policy in force when the claim is made (not when the negligence occurred) responds.

A claims-made policy responds to claims first made against the insured during the policy period, regardless of when the underlying act occurred. Most professional indemnity and D&O policies are claims-made, making continuous coverage and run-off cover critical on retirement or sale.

D&O insurance covers the personal liability of directors and officers for wrongful acts committed in their capacity as directors, including statutory claims. It typically has three sides: direct cover for individuals, company reimbursement, and entity securities cover.

Yes. Since 5 April 2021, the unfair contract terms regime in the ASIC Act applies to insurance contracts that are small business or consumer contracts. Terms may be declared void if they cause a significant imbalance in rights and obligations, are not reasonably necessary, and would cause detriment.

The insurer's right to cancel is limited by the Insurance Contracts Act. For most policies, cancellation is only permitted for specific grounds such as non-payment of premium, fraudulent claims, or a serious failure of the duty of good faith or disclosure.

A condition is a requirement in the policy that, if breached, can reduce or extinguish the insurer's liability. Section 54 of the Insurance Contracts Act prevents an insurer from refusing to pay a claim because of an act or omission unless that act or omission could reasonably be regarded as capable of causing or contributing to the loss.

Most policies require notification "as soon as reasonably practicable" after a loss or circumstance. Statutory limitation periods for disputes with insurers are generally 6 years from cause of action, but earlier notification is required to preserve cover.

Claims handling is a financial service under the Corporations Act since 2021, meaning insurers must have an AFSL to handle claims and must do so efficiently, honestly, and fairly. Breach can lead to AFCA action, enforceable undertakings, and ASIC enforcement.

An excess is the amount the insured must contribute to each claim before the insurer pays. Deductibles can be voluntary (chosen to reduce premium) or imposed by the insurer. They are a contractual term and are enforced strictly.

Small consumer disputes can be handled free through AFCA. Commercial insurance disputes in court typically cost $50,000-$500,000+, driven by expert evidence on quantum and causation. Most cases settle at mediation or on the eve of trial.