Autumn 2014 Newsletter

Your duty of disclosure to your insurer

Have you ever had that nagging feeling that your insurer might, just might, find a reason not to pay out on a claim?

We all deal with different kinds of insurance; house, contents, life, health, travel, mortgage, income protection, professional liability, public liability, earthquake, builders risk, and, if you want to believe, some foreign providers even offer a policy protecting against alien abductions.

No doubt you read your insurance policies in detail and are aware of the circumstances in which your claim can be refused (for example if you snow-ski overseas, injuries that occur while off-piste are typically excluded from travel insurance).

Duty of disclosure

In New Zealand the insurer has a right to refuse a claim if you, the insured party, failed to disclose something that may have influenced their decision as a prudent insurer to offer you insurance in the first place. This is known as your duty of disclosure. You are obliged to update your insurer with relevant information every time your policy is renewed or varied.

Breach of the duty may have disproportionately harsh results

Your failure to disclose a material circumstance allows your insurer not only to refuse a claim, but to treat the contract of insurance as never having existed. A flow on effect is that successful claims you have made in the past could also be reversed.

The problem we face is that the consumer would typically only become aware that their policy is void when they make a claim, as this is usually the only time the insurer makes a thorough investigation of your particular affairs. Some examples where policies were cancelled for non-disclosure include:

What the insured must disclose is inherently uncertain

An insurer will usually ask you many questions to determine your premiums and level of cover, however the questions they ask are non-exhaustive and do not excuse you of your duty of disclosure.

Difficulties arise because the ordinary consumer does not have a sophisticated knowledge of insurance law. An ordinary consumer might diligently and honestly complete a detailed insurance application, overlook some piece of information they have no idea would be relevant to the insurer (and was not asked for by the insurer), pay years of premiums only to find when making an eventual claim that their policy is void.

The New Zealand Law Commission has been unsuccessfully advocating to ease the obligations on the consumer since the late 1990s to bring us more in line with the legal position in the UK and Australia. The simple advice under the current regime is to review your new or existing policy document carefully and disclose everything you possibly can to your insurer and let them decide what is relevant. If this results in a higher premium – you can take comfort knowing you are now less likely to have a claim rejected due to non-disclosure.

 

Makeover for trust law proposed

The Law Commission feels a new framework is needed to provide a clear and robust approach for trusts in the 21st Century. They are undertaking a three part review of trust law in New Zealand and presented the first report to Parliament on 11 September 2013.

The Law Commission report focuses on the essential nature of trusts and recommends the introduction of a new Trusts Act (‘new Act’) to replace the Trustee Act 1956, which the Commission believes has become outdated. A selection of the recommendations in the report are summarised below:

 Core trust concepts

Trustees

 Court powers and jurisdiction

General trust issues

While many of the recommendations simply clarify the existing law, the Commission recognises the new regime will widely impact the estimated 300,000 – 500,000 trusts currently in New Zealand.

Whether the Government approves the report remains to be seen. In the meantime, the Commission will continue with the final two stages of review, which relate to charitable trusts and corporate trustees. For a full list of the proposed changes refer to the Commission’s website: www.lawcom.govt.nz/publications.

 

Redundancy pitfalls for employer

An employer may make an employee redundant on the basis that there is a genuine work-related reason or business decision for that redundancy. It must be about the employee’s position, not the employee personally.

In Totara Hills Farm v Davidson (‘Totara’) the courts demonstrated that they may examine the reasons behind such a business decision, to ensure it was fair and reasonable in the circumstances, and not a cover for some other reason for the dismissal.

In Totara, the Employment Court determined that although the redundancy did relate to a genuine business decision (to save costs), the savings would not actually be achieved by the dismissal. Because of this, the dismissal was held to be unjustified.

Totara highlights the burden on employers to ensure that when they make an employee redundant that not only should it be the result of a genuine business decision, but also that the redundancy will actually achieve the intended results of that decision.

Snippets

Nothing like some friendly competition between staff members.

Not only does one lucky person who likes our Facebook page between now and the 31st March 2014 get a $25.00 Makana Voucher, to be drawn on 1st April 2014 but also one lucky staff member with the most friends to like our page will receive a $25.00 voucher.

 New Star to Join the Team

We have a new lawyer, Sacha Yanke starting on 17th March 2014.  Sacha is from Taipa originally and is coming to us from a larger firm in Auckland.

Welcome Sacha.

All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers for any losses suffered by any person relying directly or indirectly upon this newsletter.  It is recommended that clients should consult a senior representative of the firm before acting upon this information.

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