New Zealand Act
It also abolishes outdated insurable interest rules for life policies.
Plain-English explainers, not legal advice. Use the linked official source for section-level detail, and get advice for your situation.
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The Insurance Law Reform Act 1985 does not create a full insurance code but reforms specific older insurance rules. It sets protections around insurance contracts, especially in property sale transactions, overlapping insurance policies, and average clauses that reduce payouts when property is underinsured.
For business owners, the Act mainly changes how insurance policies respond when claims arise, particularly in these targeted areas.
Practical sense check
The Act is particularly relevant for businesses that own or use insured property, buy or sell land, or operate from a dwellinghouse. It also applies to insurers and intermediaries preparing policy documents and disclosures.
Not all sections apply to every business. The Act’s key provisions are often triggered by contracts for sale of land and fixtures. Marine insurance remains subject to separate rules.
The Act addresses insurance cover between signing a contract for sale of land and the purchaser taking possession or final settlement, whichever happens first. During this period, the vendor’s insurance continues to cover the property, and the purchaser may benefit from that cover unless the parties agree otherwise.
This prevents gaps in insurance cover during the transition but does not require the vendor’s insurer to pay more than it would without the sale contract.
The Act clarifies that when both vendor and purchaser have insurance policies covering the same property during a sale, an insurer cannot refuse a claim solely because another policy exists. This applies specifically in the land sale context to ensure insurers and parties cannot avoid responsibility due to overlapping cover.
Practical sense check
An average clause (or pro rata condition of average) reduces insurance payouts when property is insured for less than its full value. The Act treats these clauses differently depending on the insurance type.
For insurance relating to a dwellinghouse or its contents, average clauses are not permitted. For other insurance contracts, average clauses are valid only if the insurer clearly informs the insured in writing about the clause’s nature and effect before the contract is entered into.
If prior written notice is not reasonably practicable, the insurer must provide oral notice before the contract and written notice as soon as possible afterwards.
The Act defines a dwellinghouse broadly to include buildings or parts of buildings occupied or intended as separate dwellings, including outbuildings used mainly for domestic purposes. Average clauses are not allowed in insurance relating to dwellinghouses or their contents, even if part of the premises is used for business.
Businesses operating from a dwellinghouse should check whether their insurance covers business assets separately, as these may not be protected by the dwellinghouse rule.
Practical sense check
Yes. The vendor’s insurance continues to cover the property until the purchaser takes possession or settlement occurs, whichever happens first, unless the parties agree otherwise.
No. In land sale situations, insurers cannot deny claims solely because there is overlapping insurance. Both vendor’s and purchaser’s insurers may have responsibilities.
No. The Act prohibits average clauses in insurance contracts relating to dwellinghouses or their contents.
Insurers must clearly inform the insured in writing about the nature and effect of the average clause before the contract is entered into, or provide oral notice before and written notice as soon as practicable afterwards if prior written notice is not possible.
The Act’s dwellinghouse protections apply broadly, including to parts of buildings used as separate dwellings. Business assets may need separate insurance as they might not be covered by dwellinghouse protections.