NEW ZEALAND Law and Practice Contributed by: Aaron Sherriff, Tanya Wood and Nick Laing, Duncan Cotterill
6.2 Failure to Comply With Obligations of an Insurance Contract An insurer may avoid an insurance contract ab ini- tio if the insured does not disclose relevant informa- tion or makes a material misrepresentation at policy inception or on renewal. Once the CIA is in force, any non-disclosure by policyholders will be required to be treated proportionately by insurers. This will mean treating the policy as if it were entered into on different terms or for a different premium, rather than being set aside or cancelled, unless the insurer can show that there was dishonest or reckless conduct or that the risk would not have been accepted on any terms. The ILRA (and, once in force, the CIA) regulates the types of misstatement that an insurer may rely on in avoiding life insurance and other insurance policies. Marine insurance policies are governed by similar principles to the ILRA under the Marine Insurance Act 1908 (MIA). An insured may bring an action against the insurer for a breach of the duty of utmost good faith. This can arise from failures in claims-handling processes. The most typical form of redress for an insured where there is a failure to act in good faith is by complaint to a dispute resolution service up to a certain limit (see 6.6 Consumer Contracts or Reinsurance Contracts and 9.7 Alternative Dispute Resolution ). The dispute resolution service first investigates the complaint, and typically conciliates the issue. Other alternative dispute resolution methods are also used – for exam- ple, mediation. If there is no conciliated or mediated outcome, the dispute resolution service will issue a decision that is binding on the insurer. 6.3 Intermediary Involvement in an Insurance Contract A broker typically acts on behalf of the insured – for example, at the time of obtaining cover and making a claim. However, at the time of negotiating an insur- ance contract, the broker may act on behalf of the insurer. In that case, its role as an agent of the insurer is to procure persons to insure with that insurer rather than with any other.
A unique feature of New Zealand policies is a no-fault statutory liability cover, which typically provides cover for legal liability for fines or penalties, and the costs of defending a prosecution, for unintentional breaches of an Act of Parliament – however, note that both New Zealand’s health and safety legislation (the Health and Safety at Work Act) and New Zealand’s environmental protection legislation (the Resource Management Act) prohibit insuring against a fine. 6. Making an Insurance Contract 6.1 Obligations of the Insured and Insurer Both an insurer and an insured owe each other a duty of utmost good faith. The insured must disclose all material circumstances and must not misrepresent facts to the insurer. This duty applies when entering into the insurance con- tract, as well as during the currency of the insurance policy. Material circumstances are those that a prudent insur- er would take into account when calculating the pre- mium, providing terms and conditions to the particular insured or risk, or deciding whether to insure the risk. The insurer also has an implied obligation to pay claims within a reasonable time of their being lodged. The insurer must also disclose all relevant documents to the insured that relate to the investigation of the claim by the insurer. See 12.1 Significant Legislative or Regulatory Devel - opments regarding the CIA, passed by the New Zea- land government in November 2024. When the Act comes into force, it will change an insured’s disclosure obligations (including by having different requirements for consumers and for businesses) and will narrow the broad remedies available to an insurer for non- disclosure and misrepresentation (on this point, see 6.2 Failure to Comply With Obligations of an Insur- ance Contract ).
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