New Zealand’s new Contracts of Insurance Act 2024 – experience from the UK’s Insurance Act 2015

New Zealand (NZ)’s Contracts of Insurance Act 2024 (CIA) received Royal Assent in November 2024 and will come into force on a date (or dates) set by Order(s) in Council (or 15 November 2027 at the latest). 

The CIA represents a major shift in the legislation governing the country’s insurance law. Until the CIA, NZ’s insurance law was found in various pieces of legislation. A separate Act will repeal much of this older legislation, with the CIA seeking to consolidate, reform and modernise NZ’s insurance law.

New disclosure duties

Part 2 of the CIA, which deals with disclosure duties, will be familiar to UK insurers. It largely replicates many of the provisions found in the UK’s Consumer Insurance (Disclosure and Representations) Act 2012 and those in the Insurance Act 2015 (UKIA) which deal with disclosure duties under non-consumer insurance contracts.

In relation to non-consumer insurance contracts, the CIA provides that policyholders must make a “fair presentation of the risk” before the insurance policy is entered or varied. This is the same duty imposed on UK policyholders by the UKIA. A “fair presentation of the risk” is one that:

1. Discloses every “material circumstance” that the policyholder knows or ought to know or, failing that, disclosure providing sufficient information to put a prudent insurer on notice that it needs to make further inquiries
2. Makes the disclosure reasonably clear and accessible to a prudent insurer and
3. In which every “material representation” as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith.

A circumstance or representation is “material” if it would influence the judgment of a prudent insurer in deciding whether to underwrite the risk and, if so, on what terms. 

Notably, the CIA also introduces the regime of proportionate remedies from the UKIA available to insurers when a policyholder breaches this duty.  Prior to the CIA, the only remedy available to insurers writing NZ business in the event of a non-disclosure or misrepresentation by a policyholder was avoidance of the policy. Under the CIA (like the UKIA), insurers can still avoid a policy, and need not return premium paid, if the policyholder makes a deliberate or reckless misrepresentation. But if the misrepresentation is neither deliberate nor reckless, then the remedy depends on what the insurer would have done if the misrepresentation had not occurred:

1. If the insurer would not have written the policy, the insurer may avoid the policy and refuse all claims but must return the premium to the insured.
2. If the insurer would have written the policy, but on different terms (other than premium), the policy can be treated as if it had been entered on those different terms.
3. If the insurer would have written the policy but charged a higher premium, an insurer can (i) increase the premium for the remaining term of the policy and/or (ii) proportionately reduce the indemnity for any claim under the policy.

The English courts have considered a number of provisions in the UKIA since it came into force. Whilst not binding on NZ courts, those English decisions will likely be considered persuasive by a NZ court considering the equivalent provisions under the CIA. One recent example of a UK case considering the disclosure duties under the UKIA is Clarendon Dental Spa LLP v Aviva Insurance Ltd [30.01.25], where the insurers claimed that the insured breached its fair presentation duty by failing to disclose that it shared a common director with two insolvent companies. The English High Court rejected this, finding that the insured had correctly answered the insurers’ proposal form, which only asked whether the insured or any of its current directors were insolvent. Further, the Court found that, by asking the insolvency question in the way that they did, insurers waived any right to disclosure of the insolvencies.

Damages for late payment of claims

The CIA also adopts a further important provision from the UKIA: Section 66 implies a term into every insurance contract that insurers must pay claims within a reasonable time. Section 66 is similar to Section 13A of the UKIA, which will be well known to UK insurers. Since Section 13A’s introduction, disputed insurance claims are now regularly accompanied by claims for damages arising from alleged breaches of the duty. The English courts have provided some guidance on Section 13A which is likely to be relevant to any NZ court considering the equivalent Section 66 of the CIA:

• Under both s 66 of the CIA and s 13A of the UKIA, whether the insurer has reasonable grounds for disputing the claim is a relevant factor in determining whether the implied term has been breached. According to the English High Court in Quadra Commodities SA v XL Insurance Company SE [2022], just because the insurers’ grounds for disputing the claim prove to be wrong does not necessarily mean they were unreasonable.
• In the usual way, an insured will only be entitled to damages if it can establish that the insurer’s breach of the implied term caused it loss. In Delos Shipping v Allianz [2024], the insured argued that if the insurer had paid its claim within a reasonable time, it would have purchased a replacement vessel which would have generated profits. The court rejected the insured’s claim under Section 13A on the basis that it could not establish that it would have purchased a replacement vessel if the claim was paid when it said it should have been.

Comment

The CIA represents the first major legislative development in New Zealand’s insurance law in some time. NZ insurers, as a well as overseas insurers writing NZ business, will need to understand the changes and adjust their practices and procedures as necessary. Given that a number of the provisions have been adopted from the UK, English case law on the equivalent UK provisions provide useful guidance on how the NZ courts are likely to approach the new provisions.

Kennedys, with offices both in New Zealand and the UK, are well placed to advise both NZ and overseas insurers on the upcoming changes and what they mean for insurers in placing business in NZ going forward.

Related item: Court of Appeal distinguishes between conditions precedent and representations under the Insurance Act 2015