Our Approach

7.1 The general issues posed by the subject matter of this report are not easily resolved. The difficulty is to achieve reform in the interests of insured persons, yet preserve a fair balance between insurer and insured. The law must try to achieve an accommodation between the clear entitlement of the insurer to have enough information adequately to assess the risk and, on the other hand, the need to protect an innocent insured who may suffer a catastrophic loss because of an inadvertent omission or misrepresentation.

7.2 Reforms in New South Wales and elsewhere in recent years have been directed towards modification of some of the strict duties which are imposed on the insured by the common law or by the contract of insurance itself. One approach has been to give the courts power to excuse a breach by the insured of a term or condition of a contract of insurance which does not prejudice an insurer (section 18 of the Insurance Act, 1902), although this provision has not provided relief in all circumstances where it might be thought appropriate. Another approach has been to provide that an innocent misrepresentation or omission shall not render the insurance contract void or unenforceable unless the misstatement or omission was material to the insurer and the insured knew or ought reasonably to have known this (section 137 of the Consumer Credit Act, 1981). Each section approaches the problem in a rather different way, but the common purpose, broadly speaking, is to protect an innocent insured whose conduct has not been unreasonable and has not materially affected the insurer.

7.3 In New South Wales the difficulty has not been so much to ascertain a general legislative policy, but to ensure that the implementation of that policy is effective to achieve its purpose. The specific problem has been the deficiencies that have become apparent in section 18 of the Insurance Act, 1902 and have been identified earlier (paragraphs 2.9-2.10). We think that those deficiencies should be overcome, since otherwise there is an unintended gap in the protection afforded by the law. We think the most convenient way of overcoming the deficiencies and achieving harmony in the law is to enact general legislation following the form of sections 137 and 138 of the Consumer Credit Act, 1981.

Overcoming the Deficiencies

7.4 We have identified two deficiencies in section 18 of the Insurance Act, 1902.

• The first is that the section has been held not to apply to a breach by the insured of the common law duty of disclosure of material facts (paragraphs 2.3, 2.7, 2.9). Thus the court has no power to excuse an innocent non-disclosure in breach of the common law duty, even though the non-disclosure had no bearing on the making of the contract of insurance or the loss which ultimately occurs.
• The second is that section 18 may not apply where the insured breaches a “basis of contract” clause (paragraph 2. 10). Consequently the court may not be able to excuse an innocent and immaterial mis-statement in the proposal.

The power of the court under section 18 to excuse a breach by the insured of his or her duty to the insurer is therefore subject to serious limitations which in our view are capable of causing injustice.

7.5 We have also identified a further possible weakness in section 18, in that the insurer may too readily be able to show “prejudice” within the meaning of the section (paragraph 4.8).

7.6 We have explained that sections 137 and 138 of the Consumer Credit Act, 1981 substantially change the common law and the pre-existing rules relating to non-disclosure, misrepresentation and exclusion clauses (paragraphs 4.7 ff). These sections (in relation to the limited class of transactions to which they apply) overcome the defects we have identified in section 18 of the Insurance Act, 1902. Section 137(b) applies to breaches by the insured of the common law duty of disclosure (paragraph 4.9). Unless the insurer is able to satisfy the conditions specified in the subsection such a breach will not result in the insurance contract being avoided or rendered unenforceable. Sections 137 and 138 may be invoked notwithstanding that the insured has “breached” a basis of contract clause by incorrectly or insufficiently completing a proposal, where that document and the answers thereto have been made the basis of the policy (paragraphs 4.13-4.16).

7.7 The extension of sections 137 and 138 of the Consumer Credit Act, 1981 (subject to exclusions mentioned later) would therefore overcome what can be described as the threshold defects in section 18 of the Insurance Act, 1902. In addition, the sections are not subject to the limitations inherent, for example, in section 25 of the Instruments Act 1958 (Vic) (paragraph 5.4).

A Fair Accommodation?

7.8 The next question is whether section 137, in particular, reaches a fair accommodation between the interests of the insured and of the insurer. The scheme of the section has been explained (paragraphs 4.9-4.10). Section 137 substitutes a different test from that employed in section 18 of the Insurance Act 1902, for the purpose of determining whether the insurer has been so adversely affected by a misrepresentation or non-disclosure as to warrant avoidance of the insurance contract.

7.9 The provisions of section 137 have received thorough and detailed consideration and represent a Parliamentary solution to the general problem with which we are concerned. The section has been enacted in identical form in New South Wales and Victoria.¹ We understand that both Acts are likely to be proclaimed to commence within a reasonably short time. The responsible Ministers in each State have stated in Parliament that they hope other Australian States will legislate in similar terms in relation to consumer contracts generally.² Thus it is proper to conclude that the section has been regarded by the policy makers and Parliaments of two States as reaching a fair accommodation between the interests of insurer and insured.

7.10 Some criticisms could be levelled at the scheme of section 137. The tests an insurer must satisfy in order to avoid an insurance contract involve a combination of the insured’s subjective belief and an assessment of whether the insured’s failure to appreciate that material information had been misrepresented or omitted was unreasonable. In the application of these criteria, as we point out elsewhere (paragraph 4.18), a great deal will depend on the facts of each case. We think that courts will not experience undue difficulty in applying the statutory criteria, which reflect the approach recommended by the English Law Commission in 1980 (paragraph 6.3).

7.11 The tests that an insurer must meet under section 137 are significantly more stringent than the test of “prejudice” established under section 18 of the Insurance Act, 1902. For reasons explained earlier (paragraphs 4.9-4.11, 4.13), we consider that the tests in section 137 accommodate both the legitimate interests of insurers and the legitimate expectations of honest and careful proponents for insurance. We therefore do not consider that the legislative solution embodied in section 137 can be characterised as unfair to insurers.

An Incentive to Dishonesty?

7.12 A major insurance company operating in New South Wales³ has suggested to us that we should be cautious in recommending changes in this area lest our recommendations have the effect of encouraging dishonest or unjustified insurance claims. The company points out that in recent years the incidence of general insurance claims, particularly in the fields of motor vehicle and home burglary insurance, has increased sharply. The company reports that in dollar terms claims during 1981-1982 in respect of car thefts increased by 45% over the preceding year. The increase in claims for domestic burglaries over the same period was about 64%. The company considers that these figures indicate a significant increase in unjustified claims, including “sham burglaries”, deliberate destruction of property and inflated claims.

7.13 We accept that dishonest or unjustified claims constitute a significant problem for the insurance industry and that our recommendations should not encourage or facilitate fraudulent claims. The extension of section 137 of the Consumer Credit Act 1981 into the general insurance area would not, however, provide protection to an insured whose behaviour has been dishonest or reckless. The section by its terms does not assist a person who has withheld material information deliberately or who knows or ought to know that the information is material to the insurer.

7.14 It is true that our recommendations, if implemented, will deprive insurers of the opportunity in some cases to raise the defence of non-disclosure. it is also true that reputable insurers may choose to raise an essentially technical defence where they suspect (but perhaps cannot prove) that an insured person has acted dishonestly. (It is difficult to imagine that a reputable insurer would rely on a defence of non-disclosure, where there is no significant prejudice, unless it is believed that the insured has been dishonest.) But in our view it should be a court and not the insurer that determines the truth of allegations of fraud. Suspicions may be unfounded. Moreover, not all insurers are reputable and the general availability of technical defences of the kind discussed means that honest insured persons could be deprived of indemnity which they should receive. in addition there is always the possibility of the honest insured being deprived of indemnity by somebody whose duty it is to take technical points, for example, a liquidator.

7.15 We appreciate that to the extent that the incidence of successful insurance claims increases, the burden will fall on the general body of insurers and, through higher premiums, on the public at large. However, a substantial proportion of contracts of insurance, particularly in respect of motor vehicles, will be covered by section 137 of the Consumer Credit Act, 1981 when that section comes into force. For reasons we have already given we think it is unlikely that the reforms proposed in this report will significantly increase the incidence of insurance claims, whether fraudulent or otherwise.

Legislative Harmony

7.16 The desirability and utility of uniformity and harmony in legislation within a State and among States needs no elaboration. Any argument for adopting legislation in relation to insurance contracts generally (that is, insurance contracts other than “consumer” contracts) in substantially different terms from the Consumer Credit Act 1981 would, in our opinion, need to be strongly based and to demonstrate clear inadequacy in sections 137 and 138.

7.17 A significant development in the insurance market, that bears on the need for legislative harmony in Australia, is the growing tendency on the part of insurance companies to issue to one insured a number of different insurance policies in one “book”. For example, a person buying a house might well obtain a “book” of insurance policies. One policy will insure the house against fire, one the contents, another public liability risks, yet another his or her motor car, and so on In our view, it is important that all policies should be governed by the same set of rules. If the provisions of the Consumer Credit Act, 1981 were not to be extended to other forms of general insurance, the consequences of one non-disclosure might vary as between the policies depending on which happened to be caught by that Act. Similarly, if the extension were not made, the position of insured persons with identical policies would vary depending upon whether the items covered were subject to a consumer credit arrangement. Clearly, anomalies and complexity could be avoided if general statutory provisions in the same terms as sections 137 and 138 of the Consumer Credit Act 1981 were to be enacted.

Problems of Interpretation

7.18 We have given careful consideration to sections 137 and 138 to ensure that in the pursuit of uniformity and harmony in legislation a reforming provision is not adopted which is either inadequate or productive of difficulty in interpretation and application. In the following paragraphs we outline the matters we have taken into account and our reasons for concluding that the sections can be adopted as provisions of general application, subject to two amendments to section 137 and one to section 138.

7.19 Voidable. Section 137 provides that a contract of insurance within its reach is not “void or unenforceable”. A failure to disclose material matters technically renders a contract of insurance voidable at the option of the insurer, and not void.⁴ The word “unenforceable” was no doubt used because the draftsman was looking to the consequences of the insurer’s act in avoiding the contract of insurance, rather than to the right of the insurer to avoid the contract. We recognise that an argument might be put that, if a contract is voidable and is avoided by the insurer, there is no longer any contract to enforce and it cannot therefore be described strictly as unenforceable. However, in our view, it was clearly intended that section 137 should extend to insurance contracts that would, apart from the section be voidable. Any other view would render the section wholly or substantially ineffective. We therefore consider that on a proper view the expression” unenforceable” achieves the intended result on the basis that an avoided contract is, in practical terms, unenforceable.

7.20 Nonetheless, in the interests of accuracy and to remove any doubt, we think that any new legislation should refer expressly to the concept of voidability. It is appropriate to preserve the word “void” in the new section to meet the type of contractual provision encountered in Lambert v. Co-operative Insurance Society Ltd.,⁵ where a non-disclosure was acknowledged to render the policy “ipso facto void”, although there may be doubt as to whether such a provision does take effect according to its literal meaning. The new section should therefore delete the words “not void or unenforceable” from the language used by section 137(a) and substitute the phrase “not void, voidable or otherwise rendered unenforceable”.

7.21 Omission of Matter. We have considered whether the expression “omission of matter from the contractor a proposal, offer or document” is sufficient to bring within section 137(a) failure to disclose material facts in breach of the common law duty. A possible argument against this view is that the answer given to the questions put maybe full and correct yet there may still be a failure to disclose a material fact about which no question is asked. We consider that the answer to this argument is that unlike other legislation to which we have referred (paragraphs 5.1 and 5.3), the section is not confined to omissions from documents. In our view, on its proper interpretation, the section extends to oral “proposals” and “offers” which are subject to the common law duty of disclosure. A non-disclosure can accordingly be properly described as an “omission of matter from the contract or a proposal, offer or document”. Certainly, the mischief to which section 137 was directed, and to which the proposed section I8A is directed, concerns non-disclosure in every circumstance. Applying recognised canons of statutory interpretation we are confident that the sections would not be interpreted narrowly so as to defeat their clear intent.

7.22 Cover Notes. For similar reasons, we think it clear that section 137, and the proposed section 18A, apply to cover notes. They are plainly contracts of insurance and result from a proposal or offer, which commonly is made orally. No canon of construction requires the sections to be read down so as to be confined to written contracts, proposals or offers.

7.23 Burden of Proof. We are conscious that express provision is made in section 138 as to the party having the burden of proof, whereas section 137 makes no such provision. We have formed the view that it is unnecessary for the proposed section 18A to provide expressly for this. as the usual canons of interpretation are adequate for the purpose. We refer again to this question in paragraph 7.32.

7.24 Contracting Out. We next turn to a matter to which we have devoted considerable attention namely the possibility that insurers might attempt to circumvent or contract out of the legislation given that the proposed section achieves a fair accommodation of interests we consider it unlikely that reputable insurers would attempt to circumvent the legislation. We also think that the courts would be quick to frustrate any such attempt. However, we recognise the possibility that proposal forms or policy documents could be framed which for example, might endeavour to extract an acknowledgment or recognition by the insured that the subject matter of every question is material to the insurer and that the insured knows it to be so. Alternatively, insurers might use the legislation as an occasion for oppressively lengthy, or widely framed and possibly ambiguous questions, so as to cast the net of disclosure as wide as possible.

7.25 At the outset we observe that attempts by insurers to place proponents for insurance on actual or constructive notice of matters which they regard as material, or to include in proposals questions as to all pertinent matters which to them might be material, is neither reprehensible nor contrary to the interests of insured persons. If the legislation achieves the result that insurers more clearly and carefully explain to proponents for insurance what is required of them, that would be beneficial to all and might well reduce the incidence of claims disputed on the ground of non-disclosure. indeed, the purpose of the reforms recommended in this report is ultimately to prevent the unfair avoidance of liability. If an insurer clearly and specifically draws the attention of the insured to information that is material, and it is material to that insurer, then in general we see no reason why it should not be supplied, or why a failure to supply it should be excused.

7.26 We are confident that courts will not allow the legislation to be abused by devices such as deeming clauses, or declarations as to matters which would be beyond the comprehension of average proponents for insurance. It would not be difficult for the courts to conclude that complex or unfair “deeming” provisions are insufficient of themselves to give rise to knowledge or constructive knowledge of the kind referred to in the section. Similarly, it would not be difficult to read down ambiguous, vague or sweeping questions. Rather, we see the courts as considering the tests prescribed by the proposed section 18A by reference to the entire matrix of facts surrounding the insurance contract. The documents would be but one aspect of that matrix. In our view, matters personal to the insured, including his or her command of the English language, business sophistication (or lack of it) and prior experience in matters of insurance should also be taken into account. Similarly, it would be proper to take into account any misleading or inaccurate advice given by persons for whose conduct the insurer is responsible, where the advice might lead the insured to misunderstand or not to comply with the documentation supplied by the insurer for completion in addition, the knowledge and understanding of average persons would be taken into account.

7.27 We repeat that we are confident that reputable insurers are unlikely to bring to bear an approach deliberately aimed at circumventing the plain intention of the law. For insurers who do attempt to circumvent the law, we consider that the proposed section is adequate to prevent abuses. For these reasons we do not, at this stage, see need for any additional provision designed to limit or prevent practices of the kind in question. If, however, we are wrong, and abuses do occur despite the legislation, the possibility of further reform to overcome the abuses should not be dismissed.

7.28 The Circumstances of the Insured. We have expressed our view that section 137, as presently drafted, allows a court to take into account matters personal to the insured (such as education, language skills and business experience) in determining what an insured “ought reasonably to have known” (paragraphs 4.20 and 7.26). We recognise the possibility of an argument that the section adopts an objective test of the “reasonable insured”, so that the court would be obliged to exclude considerations personal to the individual insured. In our view, this interpretation (if accepted) would frustrate one purpose of the section, since it would discriminate against those who, by reason of education, experience or origin, cannot reach the required standard of care. We do not consider, on the present wording of the section, that this interpretation would prevail but we recommend that in any new legislation the matter be placed beyond doubt. This recommendation is consistent with the approach of the ALRC (paragraph 6.6). This recommendation could be implemented by substituting for the phrase “the insured knew or ought reasonably to have known” the following:

the insured knew or a reasonable man in his circumstances ought to have known ...

7.29 The recommendation in the preceding paragraph was made after taking a variety of matters into account, including a written submission from the Insurance Council of Australia Ltd. (the ICA), followed by discussion between members of the Commission and the ICA. The ICA submission consistently with our view, accepted that a proper interpretation of the words “ought reasonably to have known” in section 137, requires that considerations personal to the insured be taken into account by the courts. As stated in paragraph 7.28, we envisage the possibility of a contrary argument and recommend the elimination of all doubt by means of the phrase “a reasonable man in his circumstances ought to have known”. Therefore, the Commission and the ICA are in substantial agreement on interpretation. However, we diverge on the question of desirable reform. The ICA view is that” equity would be much better served’ if the test in section 137 (section 18A in the draft legislation in Appendix I) was an entirely objective one, that employed the standard of “a prudent insured”. The effect of the ICA suggestion in relation to section 137 and section MA(2) of the draft legislation would be to delete the expression the insured knew or ought reasonably to have known” from the first, and the expression “the insured knew or a reasonable man in his circumstances ought to have known” from the second, and to substitute the expression “a reasonable insured of ordinary prudence ought to have known”.

7.30 We are unable to accept this part of the ICA submission for a number of reasons. These include the following.

• Justice is better served by the use of a test that enables the courts to take into account considerations personal to the individual insured.
• Our recommendations will preserve the interests of insurers in the very cases in which the ICA believes insurers should not be disadvantaged, namely, cases where (in the ICA’s words) insured persons “speaking commercially are capable of looking after themselves”. Under the test which we have recommended in paragraph 7.28, it is plain that an insured who, for example, is a knowledgeable lawyer, or a large public company, will be expected to “know” much more than a modestly-educated individual with poor command of the English language. Under the test suggested by the ICA submission the knowledgeable lawyer and the public company could be unduly advantaged in that they need only conform to the standards of “a reasonable insured of ordinary prudence”, even if one happens to be a senior barrister specialising in insurance law and the other employs insurance specialists on its staff. In summary, we believe that the interests of both insured persons and insurers will be better served by the adoption of our recommendation than by the adoption of a “reasonable insured’ criterion.
• The ALRC has considered this question at length and given the same answer as we have.⁶ In a careful review of the recent history of insurance law reform in the United Kingdom the ALRC draws attention to the fact that the Law Commission in England in 1979 also advocated the same test in a working paper after considering and rejecting the “reasonable insured” test which had been proposed in 1957 by the English Law Reform Committee.⁷

7.31 A suggestion of the ICA that our reform proposals should be confined to domestic insurance, as distinct from commercial and company insurance, in our view lacks justification An exclusion of the kind suggested by the ICA would, for example, deprive small business and many other organisations and persons of the benefit of law reform despite the fact that the existing law may render them vulnerable to catastrophic loss even though they have acted honestly and (given their circumstances) reasonably. We can see no good reason for such an exclusion.

7.32 Structure of Draft Legislation. The ICA submission led us to make two amendments to our discussion draft. The first amendment was to divide our draft legislation into two sections (section 18A and section 18B) thus restoring the scheme of the Consumer Credit An 1981 with its separate sections 137 and 138. The Appendix to our original discussion draft contained only one section (section 18A) in which subsections (1) and (2) reflected section 137 and subsections (3) and (4) reflected section 138. The ICA submission drew to our attention the fact that subsections (3) and (4) made provision for the placement of the burden of proof, while subsections (1) and (2) make no such provision. In order to avoid affecting the interpretation of subsections (1) and (2) by reason of their inclusion in the same section as subsections (3) and (4), we changed the draft legislation in the manner described. As mentioned in paragraph 7.23 we are of the view that it is unnecessary for section 18A to make express provision for the placement of the burden of proof.

7.33 Exclusion Clauses - Section 138. The second amendment which we have made pursuant to the ICA submission relates to section 18B which provides a mechanism whereby an insured person may remain indemnified in the face of an exclusion clause (paragraphs 4.16 and 4.17). The ICA submission suggested that there could be circumstances in which the continuation of the obligation to indemnify because of the operation of the section would be unfair to an insurer, because, at the least, the insurer would have required a greater premium at the outset had it foreseen the cancellation of the exclusion. We did not agree with the analysis by the ICA of a hypothetical case put to us in the written submission but we do agree that the terms of section 18B could be improved. In particular, we accept that there could be cases in which there may be no nexus between a loss and an exclusion clause (thus entitling the insured under the section to remain indemnified), in which the insurer, relying upon the exclusion clause, may have been influenced in setting the premium or may even have been influenced to accept the proposal. A case which comes to mind is that of an exclusion in a motor vehicle policy declining cover where the driver is unlicensed or disqualified. A vehicle driven by such a driver may be involved in an accident in circumstances entirely due to the fault of another driver. In such a case it is unlikely that the absence of a licence could be shown to have “caused or contributed to” the loss. Yet it might still be reasonable on policy grounds, for the insurer to rely on the exclusion. We believe that the proposed legislation should be able to accommodate this case and not preclude reliance on the exclusion where appropriate.

7.34 We can see a number of ways of improving the drafting of section 18B but for reasons already given in paragraphs 7.16 and 7.17, we think that it is preferable to retain as much harmony as possible in the relevant legislation. We have, however, come to the view that there is a sound basis for inclusion in section 18B of additional protection for insurers. We believe that this can best be achieved by a similar approach to that which underlies section 18 of the Insurance Act, 1902, namely, conferring on the courts a discretion under which the insurer could be relieved of the obligation to give indemnity when it is reasonable to do so. Accordingly, we have added to section 18B(1) the following words:

unless in all the circumstances it is not reasonable for the insurer to be bound to indemnify the insured.

Retention of Section 18

7.35 To some extent section 138 overlaps section 18 of the Insurance Act, 1902. Each is designed to allow an insured person to claim and receive indemnity despite the contrary terms of a contract. Yet the two sections are expressed in different terms and are not coextensive in scope. For example, section 18 allows any failure to observe or perform any term or condition of an insurance contract to be excused by the court if the insurer is not prejudiced, while section 138 offers aid to an insured person only if the contract contains an exclusion or limitation clause. There is therefore good reason to retain section 18.

Recommendations

7.36 We therefore recommend enactment of provisions in the form of sections 137 and 138 of the Consumer Credit Act, 1981 subject to the modifications in paragraphs 7.20, 7.28 and 7.34. Our intention is that all insurance contracts governed by New South Wales law, except those contracts and policies described in paragraph 7.39 below, will be subject to the same statutory provisions when it comes to the matters dealt with by this report. The new legislation could conveniently be placed in the Insurance Act, 1902.

7.37 We have considered whether sections 137 and 138 of the Consumer Credit Act, 1981 should be repealed and replaced by the general provisions we recommend (bearing in mind that the terms of the recommended provisions are not identical). We consider this course of action to be preferable to enacting supplementary legislation, with sections 137 and 138 left intact. The replacement of sections 137 and 138 will produce uniform provisions applicable to all insurance transactions other than those expressly excluded from our recommendations (paragraph 7.39). This course of action will eliminate the doubts which might otherwise arise, as to which legislation applies to a particular policy. Difficulties might occur, for example, where a motor vehicle is. insured while subject to a consumer credit agreement and the insurance policy is continued after the credit agreement is concluded. We also see advantages in having legislation regulating insurance contracts contained, so far as possible, within a single enactment.

7.38 If the recommendation in paragraph 7.37 is unacceptable (for example, because it is thought the Consumer Credit Act, 1981 should be left undisturbed so soon after its enactment) the legislation we recommend should exclude from its scope insurance contracts which are subject to sections 137 and 138 of the. Consumer Act, 1981. This approach would be feasible, since the legislation we propose does not differ in its effect from the sections in the Consumer Credit Act 1981.

7.39 Our recommendations do not apply to the following:

• a life policy as defined by section 4 of the Life insurance Act 1945 (Cth);
• a contract of marine insurance as defined by section 7 of the Marine Insurance Act 1909 (Cth);
• a third-party policy as defined by the Motor Vehicles (Third Party Insurance) Act, 1942 (N.S.W.);
• a policy of insurance or indemnity under the Workers’ Compensation Act 1926 (N.S.W.) for the full amount of the liability of an employer under that Act;
• a policy of indemnity insurance effected pursuant to and in compliance with the provisions of section 70A of the Legal Practitioners Act, 1898 (N. S. W).

The reasons for these exclusions are given in Appendix II.

7.40 Should the recommendation in paragraph 7.37 not be acceptable it will be necessary to exclude from the new legislation:

• a contract of insurance subject to sections 137 and 138 of the Consumer Credit Act, 1981 (N.S.W.).

7.41 We do not consider it desirable or necessary to repeal the provisions of section 18 of the Insurance Act, 1902.

7.42 Submitted with this report in Appendix I is draft legislation which reflects our recommendations. The draft legislation is in the form of a Bill for an Act for the State of New South Wales. We draw attention to clause 2 of the Bill (to which paragraph 7.25 is relevant). The purpose of clause 2 is to allow a reasonable period between the time of enactment and the time the legislation takes full effect during which insurers may consider (and revise if they so decide) their procedures for making, renewing and reinstating insurance contracts. Three months would be ample.

7.43 In making these recommendations we have borne in mind the Commonwealth Constitution and the fact that the Commonwealth Parliament has power to make laws which would prevail over inconsistent State laws, in relation to all insurance other than State insurance.⁸ However, in our view this provides no good reason for failure to introduce desirable law reform on subjects to which State laws have long applied. We therefore believe that the reforms recommended in this report are desirable. As mentioned above in paragraph 6.7, they are consistent with those presented by the ALRC.

FOOTNOTES

1. Credit Act 1981 (Vic.), s. 137.

2. N.S.W. Parl. Deb. (Leg. Council), 1 December. 1981, p.1103; Vic. Parl. Deb. (Leg. Council), 3 December, 1981, p.4137.

3. Letter dated 9 December, 1982 (N.R.M.A. Insurance Ltd.).

4. MacGillivray and Parkington on Insurance Law (7th ed. 1981), para. 634; Joel v. Law Union & Crown Insurance Co. [1908] 2 K.B. 863.

5. [1975] 2 Lloyd’s Rep. 485.

6. Australian Law Reform Commission, Insurance Contracts (1982, ALRC 20), pp. 108-112; see also para. 6.6 above.

7. Australian Law Reform Commission, note 6 above, pp. 108-109: see also paras 4.22 and 6.3 above.

8. See App. II below, para. 1 and notes thereto.