NEW ZEALAND Law and Practice Contributed by: Aaron Sherriff, Tanya Wood and Nick Laing, Duncan Cotterill
8. Interpreting an Insurance Contract 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence A policy of insurance is a contract between the insurer and the insured, and is subject to the same rules of interpretation that apply to any contract in New Zea- land (see 1.1 Sources of Insurance and Reinsurance Law and 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract ). As a general rule, New Zealand law excludes extrinsic evidence regarding the previous negotiations of the parties where an objective reading shows that the par- ties intended the contract to bear a particular mean- ing. Words are to be given their ordinary and natural meaning and the policy should be treated as a whole. Other inadmissible evidence in the insurance context includes declarations of subjective intent and premium calculations used by the underwriters. Such evidence may, however, be relevant to the question of whether there was a misrepresentation or mistake vitiating the contract. Evidence relating to the content of earlier insurance contracts between the parties is admissible. Most policies written in New Zealand will incorporate the insured’s original proposal by reference. 8.2 Warranties A warranty is a promise by the insured to do or not do some particular thing (“promissory warranty”) or an undertaking by the insured that a particular fact does or does not exist (“affirmative warranty”). Warranties in an insurance contract do not need to be expressly described as such. The formal requirements for the creation of a warran- ty are outlined in Section 36 (2) of the MIA, and the general principle is that a warranty is expected to be found on the face of the policy itself. At common law, warranties had to be strictly com- plied with. If a warranty was breached, the risk was discharged automatically, and the insurer had the right to repudiate the contract from the time of the breach. The CCLA and the ILRA restrict an insurer’s common
6.6 Consumer Contracts or Reinsurance Contracts Reinsurance Reinsurance contracts are regulated in the same way as other contracts of insurance under the IPSA regime. The FMA regulates both insurance and reinsurance companies regarding financial advice that they give and certain investment products that they sell. Consumer Contracts Insurers are subject to the consumer protection provi- sions in the Consumer Guarantees Act 1993 and the Fair Trading Act 1986 (FTA). The FTA prohibits unfair contract terms in standard-form consumer contracts. Arbitration clauses in contracts for consumer insur- ance are not binding under the ILRA. It is more com- mon for consumers to access the dispute resolution procedures required under the Financial Service Pro- viders (Registration and Dispute Resolution) Act 2008. This ensures that customers have access to a free dispute resolution service if they have a dispute with their insurer. Reinsurers are not required to register. See also 6.1 Obligations of the Insured and Insurer for the different disclosure obligations for consumer contracts compared with business contracts to be brought in once the CIA comes into force. 7. Alternative Risk Transfer (ART) 7.1 ART Transactions New Zealand insurers engage in conventional rein- surance rather than ART products, and the regulator has yet to pronounce on whether ART would suffice to satisfy the reinsurance requirements demanded of insurers regulated in New Zealand. In principle, however, New Zealand regulators can grant permission for an insurer to carry on insurance business if they are satisfied that the insurer has suf- ficient security to meet claims, even without reinsur- ance. 7.2 Foreign ART Transactions See 7.1 ART Transactions .
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