The Progressive Evolution of Australian Insurers’ Duty of Utmost Good Faith to Third Party Claimants

Abstract

Over recent decades, the significance of third parties in the insurance contractual relationship has progressively increased. In Australia, challenges by claimants with entitlements under group life insurance policies providing Total and Permanent Disablement (TPD) benefits, which are commonly arranged by trustees of superannuation funds to provide benefits to incapacitated members, have been a key driver of this trend. Several cases where third party claimants have successfully challenged the decision-making processes of insurers in declining TPD claims have provided useful clarifications of the nature, extent and limits of Australian insurers’ post-contractual duties of utmost good faith. Through a progressive review of the key Australian authorities, this article examines the examples of conduct by insurers that have been held to breach the duty of utmost good faith. It also shows that through recognizing the standing of third parties, several of these decisions have provided the impetus for amendments to the Insurance Contracts Act 1984 (Cth), which now recognizes that insurers also owe the duty of utmost good faith to third party claimants.

Keywords: Insurance, Third Parties, Utmost Good Faith, Claims Handling