In brief - Amendments formally commenced on 1 July 2012
Changes to the General Insurance Code of Practice stem from a series of extreme weather events in Australia and from the desire to provide insureds with more information when claims are denied.
Code exists to raise service standards and protect rights of consumers
The General Insurance Code of Practice is the insurance industry's commitment to be open, fair and honest in the way it deals with its customers. The purpose of the code is to raise customer service standards in the industry and to protect the rights of consumers. These standards apply when selling insurance, dealing with insurance claims, responding to catastrophes and disasters and handling complaints.
The code is binding on its signatories, and compliance is actively monitored by the Financial Ombudsman Service (FOS). About 150 companies throughout Australia currently subscribe to the code, consisting of approximately 60 general insurers and 90 Lloyd’s Australia Limited coverholders and third party administrators.
The code applies to all general insurance products except a small number which are expressly excluded. Reinsurance is not covered by the code, nor is insurance that has specific requirements under statute, such as compulsory third party insurance, workers' compensation, marine insurance and medical indemnity insurance.
Evolution of the code and amendments to it
The code was first developed and introduced by the Insurance Council of Australia in 1994. In 2005, a revised code was developed. It took effect in July 2006. The code is independently reviewed at regular intervals.
In February 2012, some significant amendments were made to the code. These stemmed from a string of extreme weather events across Australia and the desirability of providing insureds with more information where claims are denied. These amendments formally commenced on 1 July 2012. They apply to claims received after that date and contracts of insurance written from that time.
Insurers have four months to decide whether to accept some claims
The code has a new clause 3.4 which applies particular standards to "specified classes of policies". A "specified class of policy" is any contract of insurance concerning motor vehicles, home buildings, home contents, sickness and accident, consumer credit, or travel.
Under clause 3.4 of the code, and unless "exceptional circumstances" apply, an insurer must decide whether to accept such a claim within four months.
What are "exceptional circumstances"?
The code defines "exceptional circumstances" as including (among a number of things) claims arising "from an extraordinary catastrophe or disaster". Where exceptional circumstances apply, insurers must make a decision to accept or deny a claim within 12 months. Accordingly, any person that suffers loss and damage from extreme weather events can now expect their insurance issues to be resolved within a year.
There is no similar requirement under the code to resolve indemnity issues by any particular time for claims that do not fall within the specified class. However, there are a number of different standards for these other claims which the insurer must meet while indemnity remains unresolved (eg regularly update the insured), all of which are unaffected by the recent amendments to the code.
Disclosure of additional information by insurers when a claim is denied
For insurers who do not write contracts of insurance that fall within the definition of "specified class of policy", the most significant amendments relate to the disclosure of information to an insured. At the new clause 3.5(b) of the code, where a claim is denied (or partially denied), an insurer must now in addition to providing written reasons for the decision and information about its complaints handling procedures, inform an insured of the right to:
"b) i. ask for copies of information about [the insured] that [it relies] upon in assessing [the insured’s] claim; and
ii. request a review under 3.5.3…of any decision [it takes] to decline to release such information…"
Accordingly, insurers and their legal advisors should amend their precedent letters when denying or partially denying indemnity to inform the insured of these rights. Further, insurers and their legal advisors will need to take steps to ensure that they can comply with any request for information from an insured where a claim is denied or partially denied.
All documents relied upon in reaching the decision to deny should be clearly identified. These documents will likely include the contract of insurance, notification forms, other communications between the insurer and insured, letters of demand and pleadings.
Reports from "service providers" and "external experts"
Further, the new clause 3.5(d) of the code provides that, when it denies or partially denies indemnity and subject to some exceptions, an insurer must on request provide an insured with copies of reports from "service providers" and "external experts". The reports must be provided within 10 business days of the request.
The code defines a "service provider" as "an investigator, loss assessor/loss adjuster, collection agent, [or] claims management service". An "external expert" is "an individual or company … engaged solely to provide an expert opinion as to the likely cause of (the insured’s) loss or damage but does not include a service provider."
Reports produced by these categories of persons must now be provided to the insured on request, save for special circumstances which the insurer must show are reasonable.
Reports from legal advisors not likely to be affected
It is unlikely that clause 3.5(d) requires an insurer to provide the insured with copies of reports or advices from the insurer's legal advisors (solicitors or counsel). Three considerations support that conclusion:
The definition of "service provider" in the code specifically does not include either solicitors or counsel.
- The definition of "external expert" in the code focuses on those who opine on the cause of the loss or damage. An insurer's legal advisor may not focus on that issue when providing indemnity advice.
- Reports or advice from an insurer's legal advisor are subject to legal professional privilege. It seems most unlikely that the code would require insurers to disclose that privileged material, particularly given the prejudice to insurers that would follow in any subsequent dispute.
Further review of the code will lead to new recommendations
The code is described as "a living document" and additional amendments can be expected in the future. A further review commenced in July 2012 and a report containing new findings and recommendations is expected in mid 2013. All stakeholders now have the opportunity to contribute to the current review.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.