From 5 April 2021, the ‘unfair contracts’ provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) have been applied to the Insurance Contracts Act 1984 (Cth) (ICA). This means that insurance contracts, like car insurance, life insurance, and house and contents insurance will be subject to unfair contract term provisions.  

What are ‘unfair contract’ terms?

Section 12BF of the ASIC Act states that a ‘consumer contract’ or ‘small business contract’ is void if: 

  1. the term is unfair; 
  2. a contract is a standard form contract; and 
  3. the contract is: 
    1. a financial product; or 
    2. a contract for the supply, or possible supply, of services that are financial services. 

What is unfair? 

Section 12BG of the ASIC Act states that a term is unfair if it: 

  1. causes a significant imbalance in the party’s rights and obligations under the contract; 
  2. it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and 
  3. would cause determent to a party if it were to be applied or relied upon. 

What is a consumer contract? 

A consumer contract is a contract where at least one of the parties to the agreement is an individual whose acquisition of what is supplied under the contract is wholly or predominantly an acquisition for personal, domestic or household use or consumption.

What is a small business? 

A small business contract is where: 

  1. at the time the contract is entered into, at least one party to the contact is a business that employs fewer than 20 persons; and 
  2. either of the following applies: 
    1. the upfront price payable under the contract does not exceed $300,000; or 
    2. the contract has a duration of more than 12 months, and the upfront price payable under the contract does not exceed $1,000,000. 

Please note that casual employees are not counted for the purpose of determining how many people are employed by a small business unless they are employed on a regular and systematic basis. 

Excluded Contracts 

The unfair contract terms do not apply to all insurance policies, like health insurance, compulsory third-party schemes, and workers compensation. 

Implications 

If a term in your insurance contract is deemed unfair, a court can declare it void or strike out the provision that it deems to be unfair, with the remaining terms of the contract continuing to operate between the parties. 

If you think that a term in your insurance contract is unfair, you can: 

  1. make a complaint to your insurance company under its dispute resolution process; 
  2. lodge a complaint with the Australian Financial Complaints Authority; or 
  3. take the matter to Court and ask for a declaration that the term in the insurance contract is unfair.