BUSN7052 Chap.12 Insurance Contracts: Disclosure and Claims
Insurance Contracts: Disclosure and Claims
Insurance has appeared in every past final in the course materials, usually as a dispute about what an insured failed to tell its insurer. This chapter explains the duty of utmost good faith, the s 11AB test for consumer insurance contracts, the s 20B duty not to misrepresent and the s 21 duty of disclosure, and the consequences of breach under ss 28 and 31 of the Insurance Contracts Act 1984 (Cth).
It also covers cover and causation, subrogation, double insurance, third-party beneficiaries and underinsurance.
What this chapter covers
- 01
Utmost good faith under s 13
- 02
Consumer insurance contracts and s 11AB
- 03
Duty not to misrepresent and duty of disclosure
- 04
Innocent and fraudulent breaches under ss 28 and 31
- 05
Alexander Stenhouse and changes in use
- 06
Subrogation, double insurance and average
Worked example · free
A home contents policy and an unasked question
- +1Classify under s 11AB: home contents cover for a household points to a consumer insurance contract.
- +2A consumer contract carries the s 20B duty to avoid misrepresentation rather than the wider s 21 duty of disclosure that applies to other contracts.
- +1She answered the insurer's questions truthfully and was not asked about equipment, so no misrepresentation is apparent.
- +1The insurer's complaint fits a s 21 duty she did not owe; whether the policy covers business equipment at all is a separate question of policy wording.
Key terms
- Utmost good faith
- The duty of good faith that s 13 of the Insurance Contracts Act attaches to an insurance contract.
- Subrogation
- An insurer's right, after paying, to pursue the insured's claim against a wrongdoer in the insured's name.
- Double insurance
- Two policies covering the same loss, from either of which the insured may claim but not recover twice.
- Average clause
- A policy term reducing a claim in proportion to the degree of underinsurance.
Insurance Contracts: Disclosure and Claims FAQ
Why does classification matter so much in insurance questions?
It decides the duty. A consumer insurance contract under s 11AB carries the s 20B duty to avoid misrepresentation; any other contract carries the s 21 duty of disclosure, which reaches matters the insurer never asked about, including changes in circumstances. The 2025 marking guide warned that some students would misclassify a business policy as a consumer contract.
What did Alexander Stenhouse decide?
The High Court found a breach of the duty of disclosure where the insured failed to tell the insurer that a building used for storage had become a manufacturing site, increasing the fire risk. Marking guides call it the waterbed case and treat it as the key authority on undisclosed changes in use.
Can my insurer sue the person who caused my loss?
Yes. After paying the claim, the insurer is subrogated to your rights and may sue the wrongdoer in your name, as Castellan v Preston and s 65 of the Act provide. The Week 10 tutorial explored this where an insured did not want his insurer to sue a friend.
What if two policies cover the same loss?
Under s 76 the insured may claim from whichever insurer they choose but cannot recover more than the loss. A 2024 guide added that an insurer can rely on the principle of indemnity as a defence only once the other insurer has paid the claim in full.
Exam move
Insurance answers follow a fixed spine, so practise it until you can write it under time pressure: cover and causation in a sentence, classification under s 11AB, the duty that follows, whether it was breached, whether the breach was innocent or fraudulent, and the consequence under s 28 with any remedy. Write that spine on a card with the section beside each step.
Then practise on the tutorial-style variations: a change of business use after the policy started, a question left blank, an untrue answer, a policy covering storage sites when goods were stolen from a truck. For each, decide classification first and say why. Learn Alexander Stenhouse as the change-of-use authority and note why the guide treated Lindsay as needing more facts.
For claims and recovery, keep subrogation and double insurance separate: subrogation is the insurer suing a wrongdoer, double insurance is the insured choosing between insurers. Finally, practise one underinsurance calculation using the proportion a past guide applied, because a figure makes the answer concrete.
The 2025 marking guide said excellent answers consider remedies and the consequences of non-disclosure, so end every insurance answer with what the insured can actually recover.
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