Do you read the T&Cs when you click “agree” online?

When millions of users signed up for ‘Pokémon Go’ they agreed to a term granting the app developers access to see and modify nearly all of their information on their Google accounts – including emails. We’ve been wondering how many users were aware of this. Were you?

In our online world, people are increasingly entering into contracts on websites without reading the terms and conditions. It’s critical that businesses know how to create enforceable online contracts that will stand up in court.

Common online contracts

Three main styles of online agreements are used in Australia. While there are no decided cases on their effectiveness here, international case law provides a useful guide.

The consensus seems to be that:

• ‘Clickwrap’ agreements, which require users to scroll through the terms and conditions before clicking ‘I agree’, are highly likely to be enforceable as users are required to take positive steps to agree to the terms and conditions;
• ‘Browsewrap’ agreements, which require users to click ‘I agree to the terms and conditions’ (or similar) and provide a proximate link to the terms and conditions, are also likely to be enforceable as a contract (but less so); and
• ‘Webwrap’ agreements, which publish terms and conditions on websites without specifically drawing them to users’ attention or requiring them to indicate acceptance are even less likely to be enforceable as a contract (but may be in some circumstances).

Are all terms enforceable?

In the analogue world, it’s generally accepted that:

• A signature binds the signatory to the entirety of an agreement, even if they did not read it; and
• The more onerous a clause, the more important it is to draw it to users’ attention.

Does this also apply to online contracts? We don’t really know yet.

So the best approach seems to be that requiring a user to click ‘I accept’ (an online signature) is likely to bind them to standard (and uncontroversial) terms and conditions in clickwrap or browsewrap agreements. But non-standard or particularly onerous terms – like our friends at Pokemon Go – are unlikely to be enforceable unless they are specifically brought to users’ attention.

Tips to enhance enforceability of online contracts

Although untested by the courts, best practice approaches include:

• Displaying the “I agree” button on the same page as, and below the terms and conditions, to provide reasonable notice of them to users;
• But if the terms and conditions are longer than can be seen on a webpage without scrolling down, they will need to be put in scroll box which users must move through before clicking “I agree”;
• Bolding or highlighting more important or onerous terms and conditions – to draw added attention to them;
• Using “I have read and agree to the terms and conditions” instead of a simple “I agree” tick box. This simultaneously reminds users to read the T&Cs and requires them to confirm that they have done so.

By Peter Vrljic

The post Online contracts: click to agree appeared first on AdviserVoice.

Jaime Lumsden Kelly

Watch out insurers: life insurance policies can remain on foot even if the premium is unpaid.

How is this even possible?

Most people assume that if they don’t pay the premium, their insurance policy will lapse. In a curious twist caused by a change to the Insurance Contracts Act 1984 (Cth), this is not the case for life insurance.

Before then, life insurance contracts with unpaid premiums could be cancelled under the common law. But amendments to the Insurance Contracts Act (s63(2)) meant that life policies could only be cancelled for fraud.

Cancellation due to non-payment was supposed to be possible under the Life Insurance Act 1995 (s210), but the wording of that Act has made that near impossible, i.e. a policy can only be “forfeited” if its surrender value exceeds a certain amount – and life risk has no surrender value.

Peter Vrljic

The end result? If the Insurance Contracts Act only permits cancellation of life insurance for fraudulent claims, the cancellation provisions of the Life Insurance Act don’t apply to life policies without surrender values and a life insurance policy can only be cancelled in accordance with one of those two Acts; then there is no right to cancel a life insurance policy on the basis of non-payment of a premium. Go figure!

Other than a speech by former High Court judge Michael Kirby in 2014 where he noted that there no longer appears to be a right to cancel life risk insurance, the Courts haven’t looked at these changes.

What’s the solution?

To ensure they can cancel a life insurance policy, insurers would need to ensure the cover automatically ends if the insured doesn’t pay their premium. Because this is technically not a cancellation, it doesn’t fall under the Insurance Contract Act.

Automatic cessation clauses need to be very carefully drafted though, and the whole policy must be reviewed thoroughly, to ensure the clause has the effect that the cover is “void” rather than “voidable”. This is critical, because “voidable” would mean the insurer has theoption to cancel the policy, and exercising such an option amounts to a cancellation which brings the insurer back within the ambit of theInsurance Contracts Act. Go figure!

Here are some handy tips to help you work out whether an automatic cessation clause makes a policy void – as opposed to voidable. Does it:

• State that the payment of the premium is a condition precedent of the policy in both the insuring clause and the automatic cessation clause? This would reinforce the interpretation that payment of premiums by the due date is intended to be a condition precedent to the availability of cover after that date;
• State that the cover is deemed to cease at midnight of the due date? This would;
  • Allow no time for any election to be made, and therefore strongly favour the view that automatic cessation was intended as opposed to an option to cancel the policy, and
  • Indicate that the cessation of cover is not the result of the election of any party, but something which is deemed to occur,
• Speak of cessation of cover, rather than the termination of the policy? This would mean that the policy as a whole would not be brought to an end, but that cover would cease when the premium is not paid (at least until it is belatedly paid). Rather than providing for automatic avoidance of the policy on non-payment (which may still be a “cancellation”), this provision makes punctual payment of the premium a condition precedent to cover.

Automatic cessation of cover for non-payment is very complex. It’s wise to seek legal advice when drafting automatic cessation clauses or seeking payment of a claim when the policy contains such a clause.

By Jaime Lumsden Kelly and Peter Vrljic

The post Unpaid life insurance remains valid appeared first on AdviserVoice.

Peter Vrljic

Remuneration for life risk insurance is exempt from the ban on conflicted remuneration – but not for much longer.

An established link between high levels of upfront commissions and poor consumer outcomes now means that modified conflicted remuneration rules will apply to all life risk insurance products issued or renewed after 1 July 2016.

Conflicted remuneration is any benefit (including a non-monetary benefit) given to a licensee (or its representative) who provides financial product advice to retail clients, which could reasonably be expected to influence the choice of financial products recommended or the financial product advice given.

After 1 July 2016 a life insurance benefit will be exempt from the conflicted remuneration ban if:

• it is a level commission, meaning that the benefit is the same for the year in which the product or products are issued as it is for each year in which the product or products are renewed; or
• it complies with the benefit ratio requirements and clawback requirements.

This change is unusual in that ASIC will set the ratio and clawback requirements. ASIC proposes to limit upfront commissions to 60% of the premium in the first year of the policy by 1 July 2018 (with a transition period of two years) and to cap ongoing commissions at 20% of the premium from 1 July 2016.

ASIC also proposes the following clawback requirements:

This means that life risk providers need to restructure non-compliant benefit arrangements to continue receiving commissions. This should be relatively easy for benefits linked to a specific life risk insurance product, but may be more difficult for volume based benefits that are not linked to specific life risk insurance products. To further complicate the issue, conflicted remuneration has never applied to agents of product issuers before, but now will, and there is limited ASIC guidance in this context.

If you have questions or need help with restructuring your benefit arrangements, or you need assistance in analysing the new proposed amendments, we’re more than happy to assist.

By Peter Vrljic

The post Conflicted remuneration appeared first on AdviserVoice.

Peter Vrljic

Remuneration for life risk insurance is exempt from the ban on conflicted remuneration – but not for much longer. 

An established link between high levels of upfront commissions and poor consumer outcomes now means that modified conflicted remuneration rules will apply to all life risk insurance products issued or renewed after 1 July 2016. 

Conflicted remuneration is any benefit (including a non-monetary benefit) given to a licensee (or its representative) who provides financial product advice to retail clients, which could reasonably be expected to influence the choice of financial products recommended or the financial product advice given.

After 1 July 2016 a life insurance benefit will be exempt from the conflicted remuneration ban if:

• it is a level commission, meaning that the benefit is the same for the year in which the product or products are issued as it is for each year in which the product or products are renewed; or
• it complies with the benefit ratio requirements and clawback requirements.

This change is unusual in that ASIC will set the ratio and clawback requirements. ASIC proposes to limit upfront commissions to 60% of the premium in the first year of the policy by 1 July 2018 (with a transition period of two years) and to cap ongoing commissions at 20% of the premium from 1 July 2016.

ASIC also proposes the following clawback requirements:

This means that life risk providers need to restructure non-compliant benefit arrangements to continue receiving commissions. This should be relatively easy for benefits linked to a specific life risk insurance product, but may be more difficult for volume based benefits that are not linked to specific life risk insurance products. To further complicate the issue, conflicted remuneration has never applied to agents of product issuers before, but now will, and there is limited ASIC guidance in this context.

If you have questions or need help with restructuring your benefit arrangements, or you need assistance in analysing the new proposed amendments, we’re more than happy to assist.

By Peter Vrljic, The Fold

The post Conflicted remuneration appeared first on AdviserVoice.