Commercial Law. Analysis topic Essay Example

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Question 1

The duty of disclosure in insurance is very important for any contract of insurance to be enforceable. This duty requires that all the parties involved disclosing all the information that is required while getting into a contract1. This duty is also known as the duty of good faith. This duty states that all the insurance contracts are Uberrimae Fidei, this means that the parties involved in an insurance contract have a duty to exercise utmost good faith to the other party in matters relating to the contract involved2. This is an implied term of the contract of insurance as per Section 13 of the Insurance Contract Act. The duty of good faith requires the parties to act in fairness, act in a reasonable way and in a manner that is seen to be decent in the eyes of the community. This means that the dealings should be fair and carried out in the most honesty way. Section 14 requires both parties to have the fairest dealings and not to totally rely on the insurance act in reaching an agreement if in following the Act will be contravening the act of good faith3.

The Insurance Act requires the parties to disclose all the material facts during the negotiations for a contract of insurance, on their own initiative, all facts of which they are aware and which are material to the proposed insurance4. This will ensure that the insurance contract is fair. This calls for the insurer to have the knowledge and identify all the information the insurance company requires to assess the risk by asking specific questions. This means that the insurer should get all the required information by asking the related questions5. This is well stipulated in section 21A of ICA. If the insurer fails to get the required information it deemed that the insurer have waived compliance with insured duty to disclose6. Section 22 of ICA requires the insurer to notify the insured in writing the duty of disclosure and their general nature before the contract is undertaken. This means that if the insurer does not do this, he loses the rights. There is a limit to the duty of disclosure because it ends once the contract of insurance has been enforced. It is also used while there is renewal of the insurance contract. This may be treated as an express term while making insurance contracts7. The law requires an applicant to only disclose the information known to them and that directly affects the policies to be put in place. This will help the insurer in assessing the risk and making the right decision. An applicant is not obliged to disclose matters that will seem to be general knowledge and those ones that are known by the insurer, this is according to section 21(2) of the insurance act. Failure to disclose the material facts by the parties involved leads to void contracts. This can make insured to lose their claims in case of the risk insured occurred8.

In case law RACV Insurance Pty Ltd v Alam [2001] VSC 5039, Alan who was the insured in the case insured her vehicle with RACV Insurance Pty Ltd. She renewed the insurance contract for the following year but all through the time she applied, obtained and renewed the policy Mr Alam his brother was a subject of criminal penalties which were as a result of property offences. There was no conviction recorded. Ms Alam was aware that his brother could regularly drive his vehicle but did not disclose the information about the criminal penalties to the insurance company while renewing the policy10. Later Mr Alam was involved in an accident while driving the insured’s vehicle, the insurance company sought to deny the claim sighting that the insured had not honoured the duty of disclosure. In response, the insured stated that the insurance company breached section 22 of ICA by failing to clearly informing her in writing of the general nature and effect of the duty of disclosure. This meant that the insurance company could not deny the claim. According to the insured the documentation she received while she first effected the insurance contract had a general explanation on duty of disclosure. There were no documents given during the renewal of the contract. The magistrate ruled in favour of the insured and this prompted the insurer to appeal the decision in the Supreme Court of Victoria. In decided the case Justice Balford sited Suncorp General Insurance Limited v Cheihk [1999] NSWCA 23811. The case emphasises on section 22 where the insurer has the duty to make the duty of disclosure clear to the insured. The Justice decided that it was clear that the insured was not informed that she needed to disclose anything about his brother while taking the policy. The judge also said that it is hard for the members of the general public to understand such details without the help of the professionals. The reason behind the judge’s decision is that the insured was made to understand that she only needed to disclose the information that was relevant to the policy in question. Therefore, the insured did not see it necessary to disclose about the criminal penalties which have been charged against his brother.

Therefore, there is need for an insurance company to honour section 22 of the ICA so as to avoid such scenarios where it is found to have breached the duty not disclosure by not informing the insured the information they are supposed to disclose so as to allow better understanding of the policy and what it covers. Therefore, the manager should be aware of all this facts so as to allow good decision making and to avoid breaching the law12.

Question 2

Impact of ICA

The Insurance Contracts Act (ICA) has brought significant changes in the insurance industry through the 2013 amendments. These changes will make the insurance companies to undergo changes so as to comply with the new amendments. This will require the insurance companies to change their internal policies so as to avoid the breach of the insurance act. The process of enacting the changes has been gradual so as to allow the insurers to understand and change their structures in order to comply with the new amendments. Therefore, there is need to have recommendations in place that will help the company to gradually enact the new amendments. This will help the people involved and even the company management to understand the procedure and the new policies that they should undertake while dealing with their clients. The amendments do not affect the contracts which have been already put in place before enactment of the provisions13.

The first recommendation to the company is that all the people involved such as managers, underwriters and insurance brokers should undertake refresher courses and tutorials so as to fully understand how the new provisions work. This will allow them to explain all the issues to their clients without breaching the Act. This will make them understand the procedures that come with the changes. The company can opt to have a few people take the refresher courses and train the rest of the employees who deal directly with the clients. This will allow them to offer the new policies without problems of the breach of the insurance act.

Another recommendation will be to have an electronic communication system so as to allow electronic communication with their clients. This will help the company to communicate with the clients in a more frequent manner and to gather enough information so as not to breach the duty of disclosure. This will also allow the clients to get the information from the insurer in more frequent bases without having to travel to the insurer offices. This will also help easy documentation and accessibility. With the new amendments the breach of the implied term of good faith will be treated a s a breach of ICA and a breach of the insurance contract. ASIC has been given more powers to intervene in any proceeding with is being enacted under the ICA14. Therefore, the company need to comply with the ICA and keep a close contact with the ASIC because they are the monitoring authority. The reason behind this is that ASIC can cancel a company’s certificate15. The ICA amendments have also made changes concerning the third party beneficiaries where they have been granted equal rights with the insured. This means that they are a subject of the duty of good faith and the insurer should explain to them the terms of the contract. They should disclose the relevant information regarding making such a contract. Insurer has to advise them whether it admits claims16.

Breach of contract is when one party to the contract does not meet the required obligations to the other party. These obligations are set by the terms of the contract, therefore, once these terms are met in one way or another is taken to be a breach of contract. The most common types of breach are when one party fails to complete the agreed terms in time. This results to lateness in completing the contract. There are many implications to breach of contract and they include destroying the company’s reputations to the other companies intending to enter into contract with the breaching company. The companies give recommendation after successful completion of contracts; therefore, a breaching company will not have any recommendations. Another implication is that the breaching company can be mistaken as a failing company to the other companies and will not receive any business dealings from the other companies in the same line of business. The company can also enter into losses if the other companies sue it for breach of contract. The company may be forced to pay heavy penalties for the breach of contract. The company can have remedies for the breach which will include cancellation of the contract. The company can cancel the contract because when a company breaching the contract allows the other company in the original position it was before the contract. There is also another remedy of restitution that puts the non-breaching company in a position to enter into another contract with a different company or have new terms to the breached company. Breach of contract is a very serious scenario in business because the breaching company destroys its reputation in the market.

Question 3


There are remedies which have been put in place to ensure that all parties work to the best of the agreed contracts. This works to ensure that contract of insurance is not breached by any and the parties who breach face penalties. The remedies available in this case include punishment from ASIC which is stated in section 920A which include banning or cancellation of operating licenses17. This means that the company will be prohibited from taking particular transactions. This means that the breaching party can be prohibited from offering any financial services. The banning may be for only a short time or permanent depending on the level of the breach. Permanent banning may be as a result of continuous breach of the law18. This may force ASIC to make permanent banning that stop the company from undertaking any financial services.

There are also remedies to the insured in case they have breached the duty of disclosure where they might not be compensated in case of a risk occurring. This occurs when insured does not disclose relevant information to the insurer which can the insurer avoid paying the insured. The insured can also be paid part of the insured amount as a penalty to non-disclosure. In a case Suncorp v Cheihk (1999), Cheihk insured his Porsche in 1996 and renewed in the following year. It was stole but Suncorp refused to pay claiming that he had not honoured the duty of disclosure about his poor driving records. The court held that Cheihk had not breach duty of disclosure and the insurance company had not complied with section 22 because the reference to the duty of disclosure was hidden19.

Therefore, there is need for all the people taking part in insurance industry to understand these remedies and work so as not to breach the ICA or any other law governing insurance.


Allan, D.E, and Hiscork, M. E. 1997. Law of Contract in Australia. Sydney: CCH Australia.

Carter, W.J, Harland, D and Lindgren. 1996. Contract law in Australia. London: Butterworth.

Clarke, P. 2006. Law of Contract. Sydney: Turnaround Publishers.

Gillies, P and Selvadurai, N. 2009. Law of Contract. Sydney: Fedaration Press.

Helewitz, J.A. 2007. Basic contract Law of Paralegals. London: Aspen Publishers.

Miller, C. and Cross, J. (2004). Business Law: Text and Cases 11th edition. Sydney: Cengage.

Suncorp General Insurance Limited v Cheihk [1999] NSWCA 238

RACV Insurance Pty Ltd v Alam [2001] VSC 503


Insurance Contracts Act 1984 (Cth)

Insurance Contracts Amendment Bill 2010

1Insurance Contracts Act 1984 (Cth)

4 Allan, D.E, and Hiscork, M. E. 1997. Law of Contract in Australia. Sydney: CCH Australia.

6 Allan, D.E, and Hiscork, M. E. 1997. Law of Contract in Australia. Sydney: CCH Australia.

8 Carter, W.J, Harland, D and Lindgren. 1996. Contract law in Australia. London: Butterworth.

9RACV Insurance Pty Ltd v Alam [2001] VSC 503

11Suncorp General Insurance Limited v Cheihk [1999] NSWCA 238

12 Gillies, P and Selvadurai, N. 2009. Law of Contract. Sydney: Fedaration Press.

13 Helewitz, J.A. 2007. Basic contract Law of Paralegals. London: Aspen Publishers.

14Insurance Contracts Act 1984 (Cth)

15 Clarke, P. 2006. Law of Contract. Sydney: Turnaround Publishers.

16 Gillies, P and Selvadurai, N. 2009. Law of Contract. Sydney: Fedaration Press.

17Miller, C. and Cross, J. (2004). Business Law: Text and Cases 11th edition. Sydney: Cengage.