Treasury has released draft legislation setting out how it intends to regulate insurance claims handling and settlement as a financial service.
Treasury’s draft Bill1 and Regulation2, which were released on 28 November 2019, follow on from the Royal Commission’s recommendation in February 2019 that the handling and settlement of insurance claims should no longer be excluded from the definition of a “financial service” and Treasury’s Consultation Paper in March 2019 which considered how that should be done. In short, the new rules will require a broad group of entities involved in insurance claims handling to obtain an Australian Financial Services Licence (AFSL), or authorisation by such a licensee, and to meet tailored financial services obligations in relation to that service.
The draft legislation’s commencement date is set for 1 July 2020, following completion of the consultation period on 10 January 2020, any final changes and then its passage through Parliament. A short transition period has been provided for the necessary preparations to be made and for relevant entities to obtain a licence or authorisation. That runs through until 31 December 2020, though that can be extended into 2021 (though no later than 30 June 2021) where a licence application has been lodged by 31 December 2020 but not yet granted.
The key elements of the new regulation of insurance claims handling are as follows:
As proposed by Treasury in March, the draft legislation will establish a new category of “financial service”, to be known as a “claims handling and settling service”. Subject to the legal services exclusion below, a person will be taken to have handled or settled an insurance claim if they do any of the following:
There is plainly a broad group of people who might carry on such activities, including representatives of the insurer itself, investigators, assessors, adjusters and advisers; however not all of those will need an AFSL or authorisation (see below).
Before moving to licensing, however, the legislation removes most legal services from the definition of a “claims handling and settling service” altogether, those being:
The Corporations Act defines a “lawyer” as a duly qualified legal practitioner so would include both external lawyers and those employed in-house by insurers and their representatives. Where they carry out these activities, they will not be regulated as a financial service.
Not all of those involved in providing a “claims handling and settling service” will need an AFSL or authorisation, though the list is fairly broad. Those caught by the requirement will be:
The “loss assessor” category will include both those who investigate the validity of claims and those that assess the insurer’s liability for them (ie. a loss adjuster). Each of these will need an AFSL or authorisation by such a licence holder.
This category should not pick up independent medical practitioners who are only providing their medical opinion in relation to an insured’s injuries or to investigators who are following an insurer’s instructions on surveillance, though the draft Bill or Explanatory Memorandum might be improved with some clarity on that point.
The term “insurance fulfilment provider” is defined to mean persons who carry on a business of providing goods or services to insureds in satisfaction of the insurer’s liability. On its face, this is a broad category which could include smash repairers, builders and the like – however those will only need an AFSL or authorisation where they are given an authority to reject all or part of a claim. Where such a provider is only following the insurer’s instructions, without such an authority, they will not be caught. It will become important, therefore, to be clear where an authority to reject aspects of a claim is being given to this category of provider and where it is not.
Those carrying on a business of handling and settling claims for one or more insurers will need an AFSL or authorisation. This group will pick up specialist claims management businesses, including third party claims administrators acting for overseas insurers. Underwriting agencies and other distributors will also be caught where they have been given a claim settlement authority. Care will need to be taken with this group to make sure that others who may become aware of insurance claims and, for instance are required to notify the insurer in that case, do not cross the line into this category.
Insurance brokers will be similarly caught where they are authorised to handle or settle claims for the insurer. However, in the absence of such an authority, the broker’s assistance to their insured client on a claim will not be caught.
Those caught by these requirements will generally need to obtain an AFSL covering the provision of claims handling and settlement services or to be authorised under such a licence (though an intermediary authorisation may be relied upon in the same way as for other financial services where appropriate, for instance where an overseas insurer wishes to rely on the AFSL obtained by a local third party claims administrator).
Entities with an existing AFSL will be able to vary their licence to include the new service. Those without an existing AFSL may decide to obtain one, for instance because of a need to provide their own authorisations to others. For both these groups, the Government’s recently introduced changes to financial services licensing requirements will be relevant (assuming they are passed)3. These will require, for both new and varied AFSLs, that applicants carry out and provide evidence to ASIC on the fitness and propriety of all their officers (not just their Responsible Officers) and also all officers of their “controllers” (for instance, their majority shareholders and ultimate owners). For some entities, this is likely to be an extensive exercise.
All other persons caught by the new requirements will need to be authorised by an AFSL holder. This will involve replacing supplier agreements currently in place with ones which include the required authorisation, along with provisions setting out the obligations needed to meet the new regulatory requirements, organising necessary sub-authorisations (for instance, for individual representatives), addressing cross-endorsement requirements and notifying ASIC of the appointment.
Looking beyond the licensing requirements, what will the new regulation require?
Perhaps the most important of the new requirements will be the obligation on licensees to do all things necessary to ensure that claims handling services are provided “efficiently, honestly and fairly”. The Explanatory Memorandum explains that this would require, at a minimum, handling and settling claims:
ASIC’s recent review of the investigation of car insurance claims4 is also a useful source of guidance. In that, ASIC set out its expectations for claims investigations, including for instance that insurers should inform customers in writing of the purpose, scope and timeframe of an investigation before it starts, limit requests for information and interviews and “actively” identify and penalise poor behaviour by investigators. While ASIC stated in its report that it expected those recommendations to be implemented immediately (and that it would pursue utmost good faith claims where that was not done), the application of the “efficient, honest and fair” obligation to claims handling will give it a much more effective power to enforce its position.
There have been significant concerns raised about the regulation of advice in relation to claims handling. The new legislation deals with that issue by expressly removing recommendations and opinions that “could reasonably be regarded as a necessary part of” providing a claims handling service from the financial product advice regime. This means that, provided claims handlers operate within this scope, distinctions between personal and general advice, and the obligations that flow from each, will not apply. There may, however, be some areas of discussion which would need to be treated carefully. For instance, if a customer were to ask about the impact of their claim on future premiums, it may not be certain that the answer would be excluded as a necessary part of providing a claims handling service.
Similarly, the draft legislation states that entities which are only providing a claims handling and settlement service, such as a claims management firm or a loss adjuster, will not need an FSG. Note, though, that entities which provide other financial services alongside a claims handling service will need to amend their existing FSG (where one is required) to include details relevant to the claims handling service.
The draft legislation includes a new obligation specific to the claims handling service. Where a cash settlement is offered to a retail client in relation to a general insurance claim, the person making the offer will be required to provide the insured with a “Statement of Claim Settlement Options”. This is a relatively simple document which will outline the options for settling the claim, so that the insured has a clear statement of their rights at the time the cash offer is made.
While this requirement seems to have been included to address property insurance products which offer the repair, replacement or cash settlement of claims (normally at the option of the insurer), there is currently nothing to prevent it applying to products where cash payment is the only settlement option. It is not clear how such a Statement would be of any value to an insured in that situation.
AFSL holders will also need to review how other AFSL obligations are to be applied to claims handling. For instance, training and competence requirements, resourcing, processes to manage conflicts of interest and breach reporting processes will all need to be extended into the realm of claims handling. Complaints handling, internal and external dispute resolution may also need adjustment, for instance to extend to the full scope of entities caught by the new requirements.
Finally, AFSL holders will need to make sure that the measures they currently have in place to oversee those involved in claims handling will meet the new regulation. This will include that those to be appointed as authorised representatives comply with their new obligations and also that their other service providers, such as lawyers, medical providers and preferred smash repairers provide their services in a way which allows the AFSL holder to meet its obligations.
A link to Treasury’s consultation can be found here – https://treasury.gov.au/consultation/c2019-36687
For more information on how removal of the claims handling exemption may apply to insurance products, please contact insurance advisory principal, Mathew Kaley.
1 Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2020 Measures)) Bill 2020: claims handling
2 Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers)(Claims Handling and Settlement Services) Regulations 2020: claims handling
3 Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Bill 2019 – introduced into Parliament on 28 November 2019
4 ASIC Report 621, Roadblocks and roundabouts: A review of car insurance claim investigations, 4 July 2019
In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph , Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph , Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph : "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.
The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane  NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.