Dear Review Panel,

Re:       Review of section 54 INSURANCE CONTRACTS ACT 1984.

The AMA submits the following with respect to the review of the Insurance Contract Act 1984, in particular section 54.

The Act was formulated to bring fairness into the area of insurance contracts and how they operate with respect to the public.

It is argued by the insurance industry, that the current common law interpretation of s54 adversely threatens availability of insurance and increase insurance premiums, and thus should be reformed.

In FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd [2001] HCA 38 (FAI) the High Court held that FAI remained liable for a claim despite the fact that its policy stipulated that the insured had to notify them of a claim or possible claim during the period of insurance.  The Court held that s54 applied and FAI could not rely on its clause within the contract to avoid liability.

s54 has been discussed in a significant number of cases since its commencement.  On the whole the section has been read broadly and the only significant case - FAI v Perry (1993) 30 NSWLR 89, which went against judicial interpretation, has been overruled.

s54 was constructed to act as both a barrier - such that an insurer cannot control the operation of the act through the terms of its contract, and to be remedial.

This type of consumer protection should not be tampered with.  Relinquishing or weakening this control could see insurers increasing the means by which they exclude their liability under a policy to the detriment of a policyholder and a third party.

FAI demonstrates why the section was formulated; but for a simple omission by the insured the policy would have operated.

Recent opinion published in the press (Financial Review 15th September 2003 p62) overstates the FAI decision.  It did not give "...a very broad meaning that alters the bargain between professionals and their insurers.  The intention was to help professionals...".   

FAI followed other cases, and merely clarified the Courts previous decisions with respect to s54.

The insurance industry has other options available to it rather than diluting or destroying consumer protection.  For example, insurers could easily incorporate penalty premiums to those policyholders who demonstrate recidivism with respect to reporting.  This would ensure non-reporting was minimized, punish those who failed to report but would leave in place the important consumer protection.

Insurers could equally apply other such means to those areas affected by the Act that they feel unfairly penalizes them.

The AMA realises that s54 is a two edged sword but believes alternatives, such as the aforementioned suggestion, should be employed rather than legislating away consumer protection.

Section 54 should not be altered.

Yours sincerely

per:  Silvio Demilo

Dr Andrew Pesce

Chair

AMA Medical Professional Indemnity Task Force

15 October 2003