The NSW Law Reform Commission hopes to remove uncertainty for insurers, businesses and consumers by reviewing a 70-year-old insurance law.

Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 was introduced to protect people from parties attempting to escape their financial obligations.

There are concerns the provision does not fit with federal consumer laws  or with modern insurance, particularly directors’ and officers’ cover.

“It’s important we have laws in place that are easy to understand and provide maximum protection for consumers,” Attorney-General Gabrielle Upton said today.

“However, the legislation is complex and its impact on insurance policies is unclear.

“Company directors, for example, need certainty about whether their insurance can fund their costs to defend a claim. This is why I have asked the Law Reform Commission to review the law, to help work out whether it is still effective.”

NSW, the NT and the ACT are the only jurisdictions with this type of legislation in place. Every other state applies federal insurance laws to protect consumers.

The review opens up debate about potential changes, and the Insurance Council of Australia (ICA) has already called for the law to be scrapped.

ICA says it was originally intended to protect third-party beneficiaries in situations where, even if they obtained a verdict against an insured wrongdoer, they might not be able to recover any money from the insured.

The comprehensive regulatory regime now in place to safeguard insurance policyholders means the law is no longer necessary, it says.

“The modern insurance industry is closely regulated by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority, and consumers enjoy the protection of a number of federal, state and territory laws,” CEO Rob Whelan said.

“Reforms to the Insurance Contracts Amendment Act 2013 mean there are also strong protections for third-party beneficiaries, including the possibility that ASIC will act on their behalf. The law in its present form creates uncertainty over its impact on the ability of company directors and officers to access insurance policy funds for their legal defence.”