Insurance Law Reform Act 1985

16 Disclosure of pro rata condition of average
  • (1) Where a contract of insurance (not being a contract to which section 15 of this Act applies or a contract of marine insurance within the meaning of section 3 of the Marine Insurance Act 1908) contains a pro rata condition of average, the condition shall be of no effect unless, before that contract is entered into, the insurer clearly informs the insured in writing of the nature and effect of the condition.

    (2) Notwithstanding subsection (1), where it is not reasonably practicable for the information required by that subsection to be given to the insured in writing before the contract is entered into, that subsection shall be deemed to be complied with if the insurer—

    • (a) gives the information orally before the contract is entered into; and

    • (b) gives the information in writing as soon as it is reasonably practicable to do so.

    (3) Without limiting the means by which the requirements of subsections (1) and (2) may be satisfied, it is hereby declared that any requirement which is imposed by any provision of those subsections and which requires information in writing of the nature and effect of a pro rata condition of average to be given shall be satisfied if that information is given in writing in the following form:

    “The meaning of subject to average

    (1) Your insurance policy contains a provision making it subject to average.

    (2) That provision will have effect only if the property insured under the policy is underinsured at the time of loss.

    (3) If the property insured under the policy is underinsured at the time of loss, the following rules apply:

    • (a) if you suffer a total loss, the provision will have no effect:

    • (b) if you suffer a partial loss, the maximum amount that you may recover will bear the same proportion to your actual loss as the amount for which the property is insured bears to the full value of the property:

    • (c) whatever your loss, in no case will you be entitled to recover more than the amount for which the property is insured.

    Example: Your property is worth $20,000. You insure it for $10,000. You suffer a loss of $5,000. If your policy is subject to average, the maximum amount that you may recover will be $2,500.”

    (4) This section does not apply in respect of a contract of insurance entered into before the commencement of this Act.