The International Who’s Who of Insurance & Reinsurance Lawyers has brought together two of the leading practitioners in the world to discuss key issues facing lawyers today.
Who’s Who Legal:What recent legislative or regulatory changes have there been in your jurisdiction, and how have they affected the industry and your practice?
Peter Mann: Recent legislative and regulatory changes in Australia have been inspired by recent natural disasters or are consistent with the continuing push towards greater consumer protection following the financial crisis.
Following major flood events in Queensland in December 2010 and early 2011, the Australian Federal Government responded to concerns over the nature and extent of flood cover available to households by introducing amendments to the Insurance Contracts Act 1984 (Cth) (ICA). These amendments have recently passed through the Senate.
The amendments to the ICA include the insertion of a standard definition of “flood” which will apply to prescribed insurance contracts offering flood cover. Also included is the introduction of a requirement to provide customers with a one-page ‘Key Facts Sheet’ allowing them to easily check the basic terms of the proposed cover and any key exclusions.
These amendments will impact the scope of flood cover provided by some insurers and limit their ability to provide varying levels of cover for different flood events.
A number of other proposed amendments to the ICA were introduced into Parliament in 2010 but the relevant Bill lapsed before passing through the Senate as a result of the federal election in August 2010. It is expected that the proposed amendments will be reintroduced at some later date. The proposed amendments include important amendments in areas including the duty of utmost good faith, bundled contracts and unbundling contracts, electronic communication, disclosure and misrepresentations and third parties’ rights and obligations.
In an attempt to provide greater protection to consumers, the Federal Government is currently considering extending to insurance contracts the various protections afforded to consumers under unfair contract terms provisions, which were enacted as part of the Australian Consumer Law and came into effect on 1 July 2010. Currently these unfair contract terms provisions do not apply to insurance contracts because of a restriction in section 15 of the ICA upon the availability of relief under other legislation.
In December 2011, the Federal Government released a draft regulation impact statement considering various options for extending the unfair contract terms provisions to insurance contracts. It is now in the process of discussing proposed amendments with various stakeholders. It is expected that any amendments which extend the unfair contract terms provisions to insurance contracts will cause insurers to review existing policy wordings to ensure compliance.
Also for the purpose of providing greater protection to consumers are various amendments to the Corporations Act 2001 (Cth) which introduced as part of the Future of Financial Advice (FOFA) reforms. These changes will commence on 1 July 2012 and impact upon the sale of insurance products in particular circumstances.
Laura Foggan: Certainly, the introduction of federal Section 111 reporting obligations under the Medicare secondary payer scheme has been a significant development for non-group health insurers. There are a whole series of unanswered questions about how reporting obligations are intended to apply, and a potential for significant fines and penalties for noncompliance. Together, these circumstances have caused significant concerns for insurers struggling to comply with the new requirements.
I practice across the country and another trend that I am watching closely is a series of legislative efforts to compel coverage for construction defects. In Arkansas, Colorado, Hawaii and South Carolina, the legislatures have enacted statutes requiring general liability policies issued to construction professionals to cover damage to other property arising from faulty workmanship. Essentially, these laws seek to legislate the definition of “occurrence” in the GL policy.
Who’s Who Legal: Some lawyers reported seeing more policyholder work within the financial services area as employers seek to limit exposure as much as possible. How have the demands of your clients changed in the past few years, following the financial crisis?
Peter Mann: Understandably, in Australia clients have generally become more cost conscious in the face of financial uncertainty. In some cases, this has resulted in larger clients, through their in-house lawyers, performing themselves more non contentious matters as opposed to instructing out to external lawyers.
The increased threat of litigation and in particular large class actions against financial service providers has led to increased work in reviewing policy terms and conditions. Clients have been spending more time negotiating terms and conditions, particularly at the larger end of the professional indemnity and directors’ and officers’ insurance market. Clients have been keeping an eye on risk trends and the availability of bespoke wordings to meet their needs.
Laura Foggan: I think that the financial climate has affected insurance in many ways. In fact, the legislative efforts to compel coverage for damage from faulty workmanship is an outgrowth of the difficulties faced by the construction industry. In general, policyholders facing financial pressures may be more inclined to pursue coverage in questionable cases because they are looking to insurers as a source for funds.
Who’s Who Legal: In your region, what areas of insurance or reinsurance have experienced significant growth or depression recently, and why?
Peter Mann: The increased exposure of companies and directors to class action proceedings in Australia and the availability of litigation funding have increased the demand for directors’ and officers’ insurance (D&O) in the local market. Notwithstanding the upward trend in the number of class actions the D&O market has remained competitive.
There has also been a trend towards the use of insurance products in connection with mergers and acquisitions, such as warranty and indemnity insurance and tax liability insurance. The market for such products has further developed in Australia in recent years. The capacity for individual transactions has increased and it is considered much more affordable. This has resulted in a greater take-up.
Laura Foggan: One significant area of activity has been in Section 111 compliance, where my colleagues and I have been counselling insurers concerning their obligations under the Medicare secondary payer scheme. Insurers have been given little guidance on many difficult issues under the statute, especially in reporting payments in the context of complex liability claims.
Generally, we have seen increased activity in construction defect cases due to some prominent cases finding no “occurrence” in faulty workmanship. The South Carolina Supreme Court is now addressing the constitutional questions posed by statutory efforts to legislate the extent of coverage for construction defect claims under general liability insurance policies, and I expect to see this issue litigated in the three other jurisdictions (Arkansas, Colorado and Hawaii) that have similar laws.
I also see litigation over questions such as allocation of responsibility among insurers for large claims, and issues concerning implementation of defense obligations. Although the issues are not new, there also continues to be major coverage litigation involving pollution and contamination, as well.
Who’s Who Legal: How is has the level of and demand for specialist insurance and reinsurance lawyers changed in the past few years, and what has it meant for the relationship between private practice and in-house lawyers?
Peter Mann: Demand for specialist insurance and reinsurance lawyers in Australia has been reasonably constant in the past few years. The financial crisis caused clients to become more cost conscious generally. However there has also been a greater awareness of risk, risk management and the need for specialist insurance and reinsurance lawyers. Demand has increased with the need to address compliance issues driven in part by the considerable amount of regulatory change which has affected the insurance and reinsurance industry over the past few years.
It is fair to say that the demand for external specialist insurance and reinsurance lawyers is greater in relation to matters which involve either litigation or complex and specialised non contentious insurance or reinsurance issues where in-house lawyers want to supplement their own expertise in dealing with such matters.
Laura Foggan: There continues to be a strong demand for qualified insurance counsel in private practice, particularly in coverage litigation and in counselling and compliance in emerging areas where the law is unsettled. For example, my firm has been assisting insurers with new compliance obligations with respect to the Medicare secondary payer scheme.
Who’s Who Legal: What do you foresee for the future of the insurance and reinsurance bar in your jurisdiction?
Peter Mann: It is likely that some of the Australian regulatory changes in the area of consumer protection will lead to an increase in litigation. Some of the regulatory change whilst aimed at consumers is predicted to have a flow on effect to others. It can result in increases in multi party disputes through class actions. It is expected that this will drive demand for specialist insurance and reinsurance lawyers. It is also likely that there will be an increase in insurance and risk compliance work for clients who lack an insurance based legal expertise.
For larger insurers and reinsurers, much of the compliance related work will continue to be handled in-house. However, consistent with recent trends, it is expected that the increased complexity of compliance issues will drive demand for external legal advice from specialist insurance and reinsurance lawyers.
Laura Foggan: I look forward to continuing strong relationships with in-house counsel in meeting insurers’ needs for legal services, particularly in litigated matters and in emerging issues.