Basic Search Fields

General Insurance

Instalment contracts of general insurance

Find an insurer service

 

Instalment contracts of general insurance

What is an instalment contract?
Legislation
Dispute resolution experience
Case study
Summary

FOS has resolved a number of disputes concerning instalment contracts where the consumer has missed an instalment payment.  In these disputes, the financial services provider (FSP) has denied a claim and/or cancelled the insurance contract.

 

This article:

  • highlights important provisions of legislation applicable to these disputes
  • provides information gained through our dispute resolution experience, and
  • includes a case study based on a dispute that we determined, to illustrate the issues discussed.


What is an instalment contract?

An instalment contract of general insurance is a contract that provides for the premium to be paid by seven or more instalments over a year.


Legislation

The Insurance Contracts Act 1984 (the Act) imposes requirements that insurers have to meet when considering:

  • cancellation of a contract or
  • denial of a claim under the contract

where a consumer misses an instalment payment. 

 

Provisions including sections 39, 59, 62 and 63 of the Act can apply in these situations.  These sections are reproduced for your information at the end of this article.

Cancellation of a contract

Section 59 sets out a procedure for cancellation of an insurance contract.  The section requires an insurer wishing to exercise a right to cancel an insurance contract to give the consumer written notice of the proposed cancellation.  Section 59 states the time at which such a notice cancels the contract.  Section 77 contains provisions relating to the giving of notices.

 

Section 62 applies when an insurer seeks to rely on a contractual provision inconsistent with section 59 or 77 to cancel an instalment contract for non-payment of an instalment.  Section 62 states that an insurer may not rely on such a provision unless:

  • at least one instalment of the premium has remained unpaid for a period of at least one month and
  • before the contract was entered into, the insurer clearly informed the consumer in writing of the effect of the provision.

 

Section 63 states that an insurer may not cancel a contract of general insurance except as provided by the Act.  Any purported cancellation that contravenes the Act is of no effect.

Denial of a claim

Where a consumer misses an instalment payment and the instalment contract provides that the insurer can deny a claim for non-payment, section 39 does not allow the insurer to rely on that provision unless:

  • at least one instalment of the premium has remained unpaid for a period of at least 14 days and
  • before the contract was entered into, the insurer clearly informed the consumer in writing of the effect of the provision.

Contractual provisions for cancellations or denials because of non payment

If an instalment contract provides for denial of a claim or cancellation of the contract for non-payment of an instalment, the insurer can only rely on the provision if it informed the consumer clearly in writing of the effect of the provision before the contract was entered into.

Extensions of time for instalment payments

An insurer may extend the time that a consumer has to pay a particular instalment.  If the due date for an instalment is extended, however, any steps taken to cancel the contract will need to take this into account.  A purported cancellation may be void if it is not based on the extended time frame.


Dispute resolution experience

Information gained through our dispute resolution experience is set out below along with comments based on that experience.  This material is provided to help reduce disputes about instalment contracts and facilitate the resolution of those disputes.

Insurers should consider advising consumers about missed payments through a number of channels

In a number of disputes that we have considered, the FSP has written to the consumer to inform them that they missed an instalment payment, but not attempted to contact the consumer in any other way. 

 

We encourage insurers to consider other approaches, such as contact by telephone or email. 

Consumers should ensure their contact details and account information are updated

FOS has considered instalment contract disputes in which:

  • the FSP has sent the consumer notice of a missed payment by post, but the consumer did not receive the notice
  • instalments were to be debited against a specific credit card, but the card was cancelled and the consumer did not inform the FSP of the cancellation, and
  • instalments were to be deducted from a specific bank account, but that account was closed and the consumer did not give the FSP details of another account to use.

 

A consumer with an instalment contract should ensure the insurer has:

  • the consumer’s current:
    • postal address
    • telephone numbers, and
    • email addresses and
  • up to date details of any credit card or bank account from which instalments are to be paid.

Information to provide to FOS

When considering a dispute about whether an FSP correctly cancelled an instalment contract or denied a claim under such a contract, FOS needs to take into account all relevant correspondence between the parties.

 

If there was a change:

  • in the consumer’s contact details, or
  • affecting instalment payment arrangements;

 

the consumer should provide to FOS:

  • if the consumer informed the FSP of the change in written correspondence, a copy of the correspondence
  • if the consumer informed the FSP of the change in a telephone or face to face conversation, information about the conversation to answer:
    • Who did the consumer speak to?
    • When did the conversation take place (time and date)?
    • What was said in the conversation, particularly by the consumer?


Consumers should update their insurers directly

A consumer in one dispute lodged with FOS advised a company related to the FSP, but not the FSP itself, of a change to the consumer’s postal address.  The consumer assumed that the related company would advise the FSP of the change.  Consumers cannot assume that information will be passed on to insurers by related parties.  Consumers should provide information to their insurers directly.  Privacy laws may prevent a related party from passing on information to an insurer.

 

Consumers must ensure instalments are paid

In a number of instalment contract disputes considered by FOS, for a considerable time, the consumer did not hear from the FSP or pay instalments as arranged from a credit card or bank account.  FOS has consistently stated that in these cases the consumer must ensure that funds are available to cover any instalments due and that they are paid.  As explained above, consumers should also keep their contact details and payment arrangements up to date.

 

Case study

The claim

The Applicants arranged a comprehensive motor vehicle insurance policy with the FSP on 18 March 2008.  This was an instalment contract.  The FSP took action to cancel the policy on 1 May 2008 following non-payment of premium instalments.

 

The Applicants lodged a claim after their motor vehicle suffered damage in an accident on 26 October 2009.  The Applicants said they did not receive letters from the FSP to request payment of the unpaid instalments and to cancel the instalment contract.  The Applicants said they were unaware the FSP had cancelled their policy.

 

The FSP’s position

The FSP denied the Applicants’ claim, relying on a policy provision relating to the consequences of non-payment of premium instalments.

 

FOS assessment

For approximately 18 months the Applicants failed to realise the FSP had not deducted instalment payments from a bank account as arranged.  Consumers have an obligation to ensure funds are available to cover any instalments due to an insurer and that these instalments are being deducted.  In this case, at least one instalment remained unpaid for a period of more than 14 days.  This entitled the FSP to deny the Applicants’ claim as its policy provision was in compliance with section 39 of the Act.

 

The FSP’s purported cancellation of the instalment contract however was void. The FSP had notified the Applicants by letter that it had extended the instalment due date by 14 days from the original due date.  When the FSP subsequently informed the Applicants of the cancellation, as required under the contract, it had failed to adjust the relevant dates.  As a result, the FSP failed to comply with the Act and therefore the purported cancellation was ineffective.

 

(This case study is based on Determination number 213726, which is on our website here, along with other determinations that deal with issues arising where consumers miss instalment payments.)


Summary

The Act imposes requirements that an insurer must meet if it seeks to cancel an instalment contract or deny a claim under the contract for non-payment of an instalment payment.

 

Failure to comply with the requirements may mean that a purported cancellation is void and/or that a claim denial has no effect.

 

INSURANCE CONTRACTS ACT 1984 –

Section 39 – Instalment contracts of general insurance

 

Where a provision included in an instalment contract of general insurance has the effect of limiting the liability of the insurer by reference to non   payment of an instalment of the premium, the insurer may not refuse to pay a claim, in whole or in part, by reason only of the operation of that provision unless:

  1. at least one instalment of the premium has remained unpaid for a period of at least 14 days; and
  2. before the contract was entered into, the insurer clearly informed the insured, in writing, of the effect of the provision.


Section 59 – Cancellation procedure

 

  1. An insurer who wishes to exercise a right to cancel a contract of insurance shall give notice in writing of the proposed cancellation to the insured.
     
  2. The notice has effect to cancel the contract at whichever is the earlier of the following times:
    1. the time when another contract of insurance between the insured and the insurer or some other insurer, being a contract that is intended by the insured to replace the first mentioned contract, is entered into;
    2. whichever is the latest of the following times:
      1. 4 pm on the applicable business day;
      2. if a time is specified for the purpose in the contract--that time;
      3. if a time is specified in the notice--that time.

 

  1. A)  In subparagraph (2)(b)(i): “applicable business day” means: 
    1. in respect of a contract that is not a contract of life insurance:
      1. if the contract is in force because of section 58 - the fourteenth business day; or
      2. otherwise - the third business day; or
    2. in respect of a contract of life insurance - the twentieth business day; after the day on which the notice was given to the insured. 
       
  2. This section does not apply to a contract of life insurance if the life policy that is constituted by the contract may be forfeited in accordance with subsection 210(5) of the Life Insurance Act 1995.

 
Section 62 – Cancellation of instalment contracts of general insurance

 

  1. An instalment contract of general insurance may include provisions inconsistent with section 59 or 77 with respect to the cancellation of the contract for non-payment of an instalment of the premium.
  2. An insurer may not rely on such a provision unless:
    1. at least one instalment of the premium has remained unpaid, at the time when the contract is sought to be cancelled, for a period of at least one month; and
    2. before the contract was entered into, the insurer clearly informed the insured in writing of the effect of the provision.

 

Section 63 – Cancellations void


Except as provided by this Act, an insurer may not cancel a contract of general insurance and any purported cancellation in contravention of this section is of no effect.


Section 77 Giving notices

 

  1. A notice or other document that is by this Act required or permitted to be given may be given:
    1. to a body corporate--in any way in which documents may be served on the body corporate; and
    2. to a natural person:
      1. personally; or
      2. by post to that person at the person’s last known address.
  2. If a notice of cancellation of a contract of insurance is given to an insured by post, the notice shall be deemed to have been given at the time at which it would have been delivered in the ordinary course of post unless the insured proves that, through no fault of the insured, the insured did not receive it.

 

 

Find an insurer service

The FOS website includes a Find an Insurer tool that consumers can use to find insurers who provide a particular type of general insurance or to find the contact details of a particular general insurer. The tool only lists members of FOS and does not list all the general insurance members of FOS at present.

 

How the service benefits our members

Signatories to the General Insurance Code of Practice are required to refer a consumer to another insurer, to FOS or to the National Insurance Brokers Association (NIBA) for further help if the consumer is looking for a type of insurance that they don’t provide.


FOS created the Find an Insurer tool to help its members to fulfil this obligation and save time with consumer enquiries. Find an Insurer also helps our members by informing their potential customers of the range of products they provide.


NIBA’s website includes a complementary tool, called Need a Broker, that consumers can use to search for insurance brokers in their area.

 

How members should use the service

If you are a general insurer and a consumer is looking for a type of insurance that you don’t provide, we recommend :

 

  • either
    • you give the consumer the link to the Find an Insurer tool (rather than FOS’s phone number), or
    • you use the Find an Insurer tool yourself to generate a list of insurers that might be able to help the consumer; and.
  • if the consumer is interested in using a broker,you refer them to www.needabroker.com.au.

 

How to be listed in Find an Insurer

Not all the general insurance members of FOS are currently listed in the Find an Insurer tool. If you are not listed, but would like to be, you simply need to fill out an electronic form and return it by email to [email protected]. We will then add your details to Find an Insurer.

 

How to update your details

If you are already listed in Find an Insurer but your list of products or your contact details have changed, please email the changes to [email protected]. We do our best to keep the listings up to date, but we encourage you to check your listing from time to time.


If you have any queries about the Find an Insurer service, please contact Olga Greco-Alberton on 03 9631 7401.