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Insurance Contracts: Things To Look Out For

Insurance Contracts: Things To Look Out For

Insurance provides protection where something unexpected occurs, but the contract still needs to be valid. Find out what to look out for in this article.

27th November 2019

Many people are unaware of what leads to the creation of a valid contract of insurance. Here are some of the legal requirements for a valid contract of Insurance. A valid contract of insurance carries with it a policy. This contract occurs where one party, (known as the ‘insurer’), agrees, in consideration of payment of consideration, (called the ‘premium’), to pay to another party, (known as the ‘insured’) an agreed amount on the happening of a specified event. Insurance, therefore, allows the transfer of risk of loss from one person (the insured) to a large number of people. The Insurance Contracts Act 1984 (Cth) governs the relationships of insurance. This article explores some critical questions to ask when examining a contract.

The 3 stages of getting insured

The process of the creation of insurance follows interim Contracts. This is temporary cover that is provided prior to the contract. This will be followed by a Proposal which outlines the nature of the contract. Finally, the insured will receive a policy outlining the conditions of the contract. Once the Insured signs, the policy come into force. The policy does not require a legal interest to be enforceable.

Duty of utmost good faith

A contract of insurance is a contract of utmost good faith (s 13). Neither party can rely on any provision of the contract if to do so would be to fail to act with the utmost good faith (s 14). Utmost good faith implies that parties are bound to exercise honesty, fair dealing and reasonableness throughout the course of the contract. It’s important that parties recognise that failure to act in good faith will amount to the contract being void. For example, if the insurer fails to give notice about a change in the terms, the contract will be void.

Duty of disclosure on the insured

The duty of disclosure on the part of the insured can be found in ss 21-21A, in which there are both subjective and objective elements of the duty of disclosure. The insurer and the insured are both under a duty to disclose relevant information about the policy. It is important that the insured know the issue personally. The issue also needs to be relevant to the decision of the insured whether to accept the risk.

Duty of disclosure on the insurer

Similar to the insured, the insurer must clearly inform the insured in writing of the general nature and effect of the duty of disclosure. Failure to do this may render the contract void.


People and businesses encounter insurance in all walks of life, but the general principles of a valid contract remain the same. If you’re unsure as to whether an insurance contract you have signed is enforceable, it may be worth contacting an insurance lawyer.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Joshua Cutrone

Josh is a Legal intern at Lawpath. He is a Commerce/Law student at Macquarie University. He has an interest in cyberlaw and blockchain technology.