Insurance Act 1902

The Act affects four main groups.

Insurers licensed or carrying on business in New South Wales are directly bound. Any policy issued, renewed or reinstated after the relevant commencement dates is subject to ss 18, 18A, 18B, 19 and 20. Foreign insurers reinsuring Australian risks may also be caught where the proper law of the contract is New South Wales.

Insureds and assignees of fire policies are the primary beneficiaries. Any individual or corporation holding a fire policy that has been validly assigned under s 14 can sue in their own name. Consumers and small businesses taking out home, contents, public liability or commercial property insurance obtain the protections in ss 18–18B.

Litigants and witnesses in proceedings involving disputed insurance claims fall under s 17A. Plaintiffs, defendants, and any third party able to give evidence about the occurrence or about the claimant’s credit may be examined at the instance of the insurer once the insurer has pleaded lack of good faith.

Finally, the courts of New South Wales are given expanded discretion under s 18 and procedural powers under s 17A. The Supreme Court and District Court in particular must apply the balance-of-probabilities test in s 18B(2) and decide whether it is “reasonable” for the insurer to be bound despite an exclusion.

The Act does not bind the Commonwealth or its instrumentalities directly, nor does it apply to contracts regulated exclusively by Commonwealth statutes such as the Insurance Contracts Act 1984 (Cth) where that Act covers the field. However, because many general insurance contracts retain a New South Wales proper-law clause, the Insurance Act 1902 continues to have practical reach.

The statute creates a mixture of positive rights, negative protections and reversed onuses.

Insureds have the right to assign fire policies (s 14), to sue in their own name after assignment (s 15), and to have minor breaches excused where the insurer suffers no prejudice (s 18). They enjoy a statutory shield against avoidance for innocent misrepresentation or non-disclosure (s 18A) and a qualified immunity from the operation of risk-increasing exclusion clauses (s 18B(1)). Insureds cannot be compelled to arbitrate pre-dispute (s 19) and, in repair disputes, benefit from a reversed onus (s 20).

Insurers gain powerful evidentiary rights under s 17A. Once they plead lack of good faith and obtain leave to be joined, they may examine any witness on the occurrence, on other claims, and on credibility, and may, with leave, cross-examine and call rebuttal evidence. These rights exist in addition to ordinary rights of cross-examination and prevail over the old Evidence Act 1898 restriction.

Both parties are subject to the court’s discretion under s 18. The insured must still prove that the failure caused no prejudice; the court then decides whether the failure “may reasonably be excused”. In s 18B the insured bears the legal onus of proving, on the balance of probabilities, that the excluded circumstance did not cause or contribute to the loss.

The Governor holds a regulatory power to exempt classes of persons or contracts (s 21(1)). The exemptions already listed in s 21(2) for marine, life, compulsory third-party and legal-practice insurance operate automatically.

The Insurance Act 1902 is not a penal statute. It contains no offence-creating provisions and no civil-penalty regime. Enforcement occurs exclusively through private litigation and declaratory or coercive orders.

Breach of the assignment formalities in s 14 may simply render the assignment ineffective at common law, leaving the assignee without standing. Failure to comply with s 19 does not attract damages but renders the arbitration clause void as against the insured.

The principal remedies are:

• declaratory relief that a breach has been excused under s 18;
• orders preventing reliance on an exclusion clause under s 18B;
• refusal to stay proceedings in favour of arbitration;
• costs orders where an insurer unsuccessfully opposes joinder under s 17A or pursues an unmeritorious fraud allegation.

Because s 17A(3)–(4) permits wide-ranging cross-examination on credit and other claims, insurers who over-reach risk adverse costs orders or findings of unreasonableness that may feed into unfair-contracts claims under the Australian Securities and Investments Commission Act 2001 (Cth) or the Fair Trading Act 1987 (NSW).

The Act is expressly subordinated to several more modern regimes. Section 17A(8) excludes its operation from motor-accident claims under three successive statutes. Section 21(2) excludes marine insurance, life insurance, workers compensation, and certain legal-practice indemnity contracts.

Section 17A(6) states that the section applies “despite section 53 of the Evidence Act 1898”, thereby overriding the old rule against questioning a witness on collateral credit matters. The provision must now be read with the Evidence Act 1995 (NSW), which contains its own credibility and tendency rules; courts have treated s 17A as expanding rather than contradicting the uniform evidence law.

The reference in s 20 to “related body corporate within the meaning of the Corporations Act 2001 (Cth)” incorporates the Corporations Law definition by reference, ensuring that corporate-group structures are captured even if the repairer is not the insurer itself.

Schedule 2 cl 3 provides that the 1999 amendments (removing gendered language and aligning with the Property (Relationships) Act 1984) do not affect estates of persons who died before the amendments. This interacts with the Succession Act 2006 (NSW) and the general law of estates.

Because the Insurance Contracts Act 1984 (Cth) now covers most consumer insurance, the Insurance Act 1902 operates as a gap-filler for contracts that fall outside the Commonwealth Act or where New South Wales law is the proper law and the Commonwealth Act does not exclude State operation.

The most recent substantive amendment was in 2017 (by the Motor Accident Injuries Act 2017 Sch 5.6) which updated the list of excluded motor-accident statutes in s 17A(8) and s 21(2). That change was consequential upon the introduction of the new no-fault motor-accident scheme and was designed to maintain the bright-line exclusion of statutory benefits claims from the fraud-testing machinery in s 17A.

The 2015 amendment (Legal Profession Uniform Law) updated the list of exempted professional-indemnity schemes in s 21(2). Earlier, the 2005 and 2001 amendments simply updated cross-references to the Workers Compensation Act 1987 and the Corporations Act 2001.

No major policy-driven rewrite has occurred since the 1983 amendments that introduced ss 18A and 18B. Those changes were a direct response to the insurance crises of the early 1980s and were intended to prevent insurers from relying on technical non-disclosures or overly broad exclusions. The 1991 insertion of s 17A was prompted by perceived difficulties insurers faced in proving fraud in “soft-tissue” and exaggerated personal-injury claims.

Because the Act is procedural and remedial, reported cases tend to cluster around three issues.

First, the scope of “prejudice” under s 18. Courts have held that prejudice need not be monetary; loss of an opportunity to investigate promptly can suffice, yet the onus remains on the insurer to prove actual prejudice before the discretion is engaged. The phrase “may reasonably be excused” has been read as conferring a broad remedial discretion.

Second, the operation of s 18B. The leading authorities emphasise that the insured’s onus under s 18B(2) is a legal onus on the balance of probabilities. Where the excluded event is “use of an unroadworthy vehicle”, insurers have succeeded where the insured cannot negative contribution; they have failed where the loss is shown to be unrelated (for example, theft rather than collision).

Third, the breadth of s 17A. Insurers have attempted to use the section to conduct wide-ranging “fishing” examinations about unrelated claims. Courts have granted leave restrictively, requiring a pleaded case of fraud and some evidentiary foundation before permitting cross-examination on credit or other claims. The interaction with the Civil Procedure Act 2005 overriding-purpose provisions has produced ongoing disputes about costs and case-management.

No constitutional challenge has succeeded. The High Court has not directly considered the Act, but intermediate appellate courts have consistently upheld its validity as a law regulating the incidents of contracts made within the State.

Most practitioners assume that the Insurance Contracts Act 1984 (Cth) has wholly supplanted State law. In reality, many commercial property, public-liability and professional-indemnity policies still attract the Insurance Act 1902 because they are not “contracts of insurance” within the defined scope of the Commonwealth Act or because the parties have chosen New South Wales law.

A second trap is the reversed onus in s 20. Even an insured’s signed acknowledgment that repairs were satisfactory does not shift the burden; the insurer must still prove proper materials and workmanship if the insured disputes quality.

Section 18A(2)(ii) uses the objective “reasonable person in the insured’s circumstances” test. Courts have interpreted this as importing the insured’s actual knowledge, occupation and experience, not a purely hypothetical reasonable consumer. Insurers who plead only a bare failure to disclose therefore risk an early strike-out.

The transitional provision in Schedule 2 cl 2(1) applies the 1983 amendments to pre-1984 statements. Many older files still contain proposal forms signed before 1 April 1984; unwary claims handlers assume the common-law uberrimae fidei rule still applies when in fact s 18A governs.

Finally, s 17A(7) applies the same expanded examination rights when the insurer is the defendant. Plaintiff lawyers sometimes overlook that an insurer defending a direct action can still invoke the section, producing an unpleasant forensic reversal for claimants who expected to control the witness box.

Insurers should:

1. Include a clear written consent mechanism on policy documents so that assignments under s 14 can be executed without later dispute.
2. When pleading lack of good faith, particularise the allegation with sufficient precision to satisfy a court that joinder under s 17A is warranted; boilerplate fraud pleas are routinely refused.
3. Before relying on an exclusion clause caught by s 18B, obtain and preserve evidence that the excluded circumstance actually contributed to the loss; the insured’s s 18B(2) onus is not onerous if the insurer has no contrary evidence.
4. In repair authorisations, avoid language suggesting the insured waives the s 20 onus; the statute overrides any such acknowledgment.
5. Maintain separate claims files for motor-accident statutory benefits so that s 17A material is not inadvertently mixed with excluded proceedings.

Insureds and their advisers should:

1. Document any assignment of a fire policy strictly in accordance with s 14(2) and obtain the insurer’s written consent contemporaneously.
2. When a policy breach is discovered, notify the insurer immediately and invite it to state whether it claims prejudice; early notification strengthens a later s 18 application.
3. In responding to a s 18B exclusion, assemble evidence (expert or lay) that negatives causation on the balance of probabilities; silence is fatal.
4. Resist pre-dispute arbitration clauses by pleading s 19; courts routinely decline stays.
5. In motor-repair disputes, put the insurer to proof under s 20; a statutory declaration from the repairer is insufficient.

Both sides should keep the transitional provisions in mind when dealing with long-tail claims. Claims handlers should obtain legal advice before invoking s 17A because the costs consequences of an unsuccessful application can be severe. Regular training on the precise wording of ss 18, 18A and 18B remains the cheapest compliance tool available under this deceptively short but persistently relevant statute.