Author Archives: Bhavin Parshottam

An Eye to Insurance Law Reform

When one thinks of insurance law in New Zealand, one may ask – where do I start and what do I need to know?

This article serves to generally outline the essentials of insurance law in New Zealand in the context of current talks about reform in this area of law.

Fundamentals

Insurance law is an area of law that is largely based on contract law, with a natural intermingling with the principles of insurance.

Some relevant statutes include:

  • Life Insurance Act 1908;
  • Insurance Law Reforms Act 1977;
  • Insurance Law Reforms Act 1985;
  • Fair Trading Act 1987;
  • Insurance (Prudential Supervision) Act 2010.

The Marine Insurance Act 1908 is another relevant statute that, in some respects, sits separately.

Naturally, these statutes form part of the proposed review of insurance law in New Zealand.

The Fair Insurance Code (FIC) is another important aspect of the governance of the insurance market in New Zealand. The members and associate members of the Insurance Council of New Zealand (ICNZ), of which there are 29 and 3, respectively, agree to follow the FIC. The FIC is a code of conduct developed by ICNZ, stipulating the standards that members and associate members must follow. The most recent version of the FIC is dated 1 April 2020.

The Insurance (Prudential Supervision) Act 2010 (IPSA) defines a contract of insurance a contract that involves the transference of risk and under which the insurer agrees, in return for a premium, to pay to or for the account of the policyholder a sum of money or its equivalent, whether by way of indemnity or otherwise, on the happening of 1 or more uncertain events. This includes a contract of reinsurance.[1]

Information that forms part of a contract of insurance includes an insuring clause, identification of the particular to be insured, and the scope of indemnity; information that is usually within a policy schedule and policy wording. The policy wording specifies the nature and scope of what is covered by insurance and terms and conditions to claims, among other relevant stipulations.

Disclosure

When insurance is placed, the insured has a lawful duty of disclosure in terms of providing material information to the insurer. Expectedly, when the insured falls short of this duty, there are consequences. One consequence is the insurer being able to avoid the policy. Then again, when facts are provided by the insured that reasonably indicate further material information, the onus is on the insurer to ask further questions. For the insurer not to do so could be viewed as them having waived the disclosure requirement.

The nature and scope of the insured’s duty to disclose and the corresponding consequences form part of the review of insurance law in New Zealand.

Brokers/Intermediaries

Generally, insurance brokers act for the insured and, usually, place risk. For their work, they are most commonly paid a commission. Recent developments have caused some uncertainty in this area. Last year, the Financial Markets (Conduct of Financial Institutions) Amendment Bill was brought forth. At present, it is at the second reading stage. The relative uncertainty is brought about by 446O, in that, intermediaries will be obligated to comply with the incentive regulations. [2] What these regulations are unclear.

Prohibitions

Specific types of insurance are illegal and, therefore, have no effect. One example includes insurance intended to cover someone’s liability to pay an infringement fine or penalty in relation to employment and workplace health and safety rules. [3]

In 2015, changes were made to the Fair Trading Act 1986. One change was making unfair contractual terms in standard form consumer contracts illegal, which applied to a certain extent to an insurance context. [5] This said, the law acknowledges that there exists terms and conditions within insurance contracts that are essential to offering an insurer protection. In such a context, some terms are not regarded as unfair. [5]

How this change may continue to affect the insurance sector is something to heed.

Concluding Remarks

This article has touched upon the roots of insurance law. It has also discussed how the tree of insurance branches out into several other areas of law.

Modern developments to insurance law and, generally, the insurance sector should be followed with interest.

Copyright Steve Keall, all rights reserved, 2020

Written by Bhavin Parshottam


[1] Insurance (Prudential Supervision) Act 2010, sections 6 and 7.

[2] Financial Markets (Conduct of Institutions) Amendment Bill, 446O.

[3] Employment Relations Act 2000, section 142V and Health and Safety at Work Act 2015 section 29.

[4] Fair Trading Act 1986, section 26A.

[5] Section 26A(3).

Caution, Forethought, and Prudence – lessons from an English case

Hart v Large [2020] EWHC 985 is a recent English case. [1] The principles from the case can be given further thought within a New Zealand context, especially regarding the scope of duties for surveyors and assessment of damages.

Facts

In 2011, the Harts purchased a property worth £1.24m.[2] Originally, the property was a bungalow built in the 1920s/1930s and had been renovated by the previous owners, the Fitzsimons, before being put on the market.[3] The Harts engaged Mr Large to conduct a survey of the property. [4] Mr Large advised the Harts to select a HomeBuyer Report, a comparatively less detailed type of report. [5] The report presented two issues; one with drainage and one with pipes/gutters. [6] However, once the property was purchased, significant structural problems relating to water ingress and damp came to the fore.[7]

These required significant remedial works.[8]

Litigation

The Harts claimed in negligence against:

  • Architects engaged by the previous owner;
  • The Hart’s conveyancing solicitor; and
  • Mr Large.

The claims against the architects and lawyers were settled out of court. The claim against Mr Large proceeded to court. The allegation against Mr Large was threefold – that he was negligent in:[9]

  • failing to recommend a full building survey
  • failing to advise of the issues of water ingress/damp in the HomeBuyer Report; and
  • failing to recommend the Harts to obtain a professional consultant’s certificate.

Result

With the first issue, the Court found in Mr Large’s favour. This meant that the Court regarded Mr Large as not being negligent when he advised the Harts to obtain the HomeBuyer Report.[10]

As to the second and third issues, the Court found in favour of the Harts. This meant that Mr Large was negligent in failing to one, advise of the water ingress/damp issues in the HomeBuyer Report.[11]

In other words, he should have advised of the limitations of his survey. And two, failing to recommend the Harts to obtain a professional consultant’s certificate.[12]

Damages/Assessment of Loss

The argument advanced on behalf of Mr Large was one in line with the Watts v Morrow [1991] 1 WLR 1421 approach.[13] Specifically, that damages should be assessed based on the degree to which the defects, that should have been addressed, would have reduced the property value below the £1.2m purchase price.[14] This argument was rejected. [15] The Court reasoned that if this was applied as the assessment of damages, it would not have put the Harts in the position they should have been in if they knew, through advice, that some risks were not assessable, and which would have resulted in a very low award of damages.[16]

The Court applied South Australian Asset Management Corp v York Montague Ltd Ltd [1996] 27 EG 125; [1997] 1 AC 191, HL, specifically Lord Hoffman’s judgment. The idea in applying this case was to state that when assessing damages, the starting point is considering the causes of action against the surveyor.[17] Here, one of Mr Large’s breaches of duty included failing to recommend to the Harts that they should have obtained a professional consultant’s certificate. The Court said that the assessment of damages was the difference in the property value with the reported defects, and the property value with all the defects.[18]

Lessons

The decision offers a reminder to surveyors, and potentially other related professionals, of the scope of one’s duty and ensuring customers are aware of it.

Prudence, caution, and forethought are the core lessons from this case.

Copyright Steve Keall, all rights reserved, 2020

Written by Bhavin Parshottam


[1] Hart v Large [2020] EWHC 985

[2] At [5] and [28].

[3] At [15] and [29].

[4] At [34].

[5] At [34].

[6] At [55].

[7] At [99] to [101] and [160].

[8] At [99] to [107].

[9] At 60, 77, and 80.

[10] At [130].

[11] At [195]-[197].

[12] [206]-[214].

[13] Watts v Morrow [1991] 1 WLR 1421.

[14] At [238].

[15] At [239].

[16] At [247].

[17] At [239].

[18] At [254].