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consumer

Insurance claims: Fair handling under consumer law

Key Takeaway

New Zealand consumer law requires insurers to handle claims fairly. The Consumer Guarantees Act 1993 ensures insurance services are provided with reasonable care and skill. The Fair Trading Act 1986 prohibits misleading conduct and unfair contract terms in insurance, ensuring transparency and honesty in dealings with policyholders regarding their claims.

Understanding Fair Handling of Insurance Claims in New Zealand

In New Zealand, consumers are protected by specific legislation regarding how businesses, including insurance companies, must conduct their services and interactions. When an insurance claim is made, the handling of that claim by the insurer is subject to the principles of fair dealing outlined in the Consumer Guarantees Act 1993 and the Fair Trading Act 1986.

Consumer Guarantees Act 1993 and Insurance Services

The Consumer Guarantees Act 1993 (CGA) applies to services supplied in trade to a consumer [Source: Consumer Guarantees Act 1993, s 2(1), s 28]. An insurance policy and the subsequent handling of a claim are considered services provided by an insurer to a policyholder, who is typically a consumer (an individual who acquires services ordinarily acquired for personal, domestic, or household use) [Source: Consumer Guarantees Act 1993, s 2(1)].

Under the CGA, consumers have several guarantees regarding services:

  • Reasonable Care and Skill: The insurer must carry out the service of providing insurance and handling claims with reasonable care and skill [Source: Consumer Guarantees Act 1993, s 28]. This means the process of assessing and deciding on a claim should be conducted competently and professionally.
  • Fitness for Purpose: If a consumer makes known to the insurer a particular purpose for which the services are required, and relies on the insurer's skill or judgment, the services must be fit for that purpose [Source: Consumer Guarantees Act 1993, s 29].
  • Reasonable Time: If the time for the service to be provided is not fixed by contract, it must be completed within a reasonable time [Source: Consumer Guarantees Act 1993, s 30]. Unreasonable delays in processing claims could breach this guarantee.
  • Reasonable Price: If the price for the service is not fixed by contract, it must be a reasonable price [Source: Consumer Guarantees Act 1993, s 31].

If these guarantees are not met, the consumer may have remedies under the CGA, which depend on whether the failure can be remedied and if it is of a substantial character [Source: Consumer Guarantees Act 1993, s 32, s 33].

Fair Trading Act 1986 and Insurance Claims

The Fair Trading Act 1986 (FTA) aims to protect consumers from misleading and deceptive conduct and unfair trading practices by businesses engaged in trade (any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services) [Source: Fair Trading Act 1986, s 2(1)]. Insurance companies operate in trade, and therefore their conduct is subject to the FTA.

Key provisions of the FTA relevant to insurance claims include:

  • Misleading and Deceptive Conduct: No person in trade shall engage in conduct that is misleading or deceptive or is likely to mislead or deceive [Source: Fair Trading Act 1986, s 9]. This is a broad prohibition that applies to statements made during the sale of an insurance policy, in policy documents, and during the claims handling process. For example, misrepresenting coverage, exclusions, or the claims process could breach this section.
  • False or Misleading Representations: The FTA specifically prohibits false or misleading representations concerning the nature, characteristics, suitability, or existence of services [Source: Fair Trading Act 1986, s 13]. This means insurers must be truthful about what a policy covers and how a claim will be handled.
  • Unsubstantiated Representations: A person in trade must not make an unsubstantiated representation. This means a representation made without reasonable grounds for making it [Source: Fair Trading Act 1986, s 12A]. For example, promising a quick claim resolution without a robust process to support it could be considered unsubstantiated.
  • Unfair Contract Terms: For consumer contracts (a contract between a business and an individual for goods or services ordinarily acquired for personal, domestic, or household use, where the individual is acting for that purpose) [Source: Fair Trading Act 1986, s 2(1)], the FTA provides protections against unfair terms [Source: Fair Trading Act 1986, s 46H, s 46I]. An unfair contract term is one that would cause a significant imbalance in the parties' rights and obligations arising under the contract, is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and would cause detriment to a party if it were applied or relied on [Source: Fair Trading Act 1986, s 46L]. While these provisions apply to the terms of the insurance policy itself, they can indirectly influence claims handling if a term is used to deny a claim unfairly.

Breaches of the FTA can lead to various remedies, including injunctions, damages, and other orders from the courts [Source: Fair Trading Act 1986, Part 5].

Resolving Disputes for Insurance Claims

If a consumer believes their insurance claim has not been handled fairly or that an insurer has breached their obligations under the CGA or FTA, they generally have several avenues for resolution:

  1. Internal Complaints Process: Most insurers have an internal complaints resolution process that policyholders can use to raise their concerns.
  2. External Dispute Resolution Schemes: New Zealand has independent dispute resolution schemes for financial services, including insurance. These schemes, such as the Insurance & Financial Services Ombudsman (IFSO) Scheme and Financial Services Complaints Ltd (FSCL), provide free and independent services to help resolve complaints between consumers and their financial service providers.

When to Seek Independent Legal Advice

Individuals who believe their insurance claim has been unfairly handled, or who are unsure of their rights and obligations under New Zealand consumer law, may wish to seek independent legal advice. Information and assistance can also be obtained from Consumer Protection (part of the Ministry of Business, Innovation and Employment) or Community Law Centres for free advice at https://communitylaw.org.nz/.

Key Resources