Help! My Insurance Claim Has Been Refused
Most Australians have some form of insurance over their home, valuables, vehicle, or health. The underlying principle of purchasing insurance is simple, you make payments whilst there is no problem so that when there is you have the benefit of financial protection. However, it is not uncommon for individuals with valid insurance policies to make a claim and to be denied indemnity by their insurer. When this occurs, it can be extremely frustrating and stressful, but there are steps that you can take to dispute the insurer’s refusal to indemnify you.
What is the Reason for the Refusal?
There are four primary reasons an insurer will refuse an insurance claim:
Depending on the reason for refusal the available defences will vary, and as such, it is necessary to look at each of the primary reasons for refusal in more detail.
When a person takes out or renews an insurance policy, pursuant to section 21 of the Insurance Contracts Act 1984 (the Act) they are under a duty to disclose every matter known to them that:
they know to be relevant to the insurer’s decision of whether to accept the risk and, if so, on what terms; or
a reasonable person in the circumstances could be expected to know to be relevant.
Where an insured has not provided accurate or complete information, the insurer may be entitled to reject their claim, but the onus is on the insurer to prove the non-disclosure allows them to do so.
Where an insurer is relying on the insured’s non-disclosure to support their rejection of the insured’s claim, there are several possible defences. The first is that the non-disclosure relates to a matter that the insured was not required to disclose. Pursuant to section 21 of the Act, an insured is not required to disclose a matter that:
diminishes the insurer’s risk;
is of common knowledge;
the insurer knows, or in the ordinary course of the insurer’s business as an insurer, ought to know; or
as to which compliance with the duty of disclosure is waived.
An insurer shall be deemed to have waived compliance with the duty of disclosure in relation to a matter where an insured has:
failed to answer; or
given an obviously incomplete or irrelevant answer to;
a question included in a proposal form about a matter.
A second defence is that the insurer has not clearly informed the insured about the nature and effect of their duty of disclosure. Pursuant to section 22 of the Act, where the insurer has not informed the insured in writing of their duty and the fact that it applies until the proposed contract is entered into, they may not rely on the insured’s non-disclosure as grounds to refuse a claim unless the failure to disclose was fraudulent.
Further, pursuant to section 28 of the Act, an insurer cannot refuse an insured’s claim on the grounds of a failure to disclose if the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the failure had not occurred, unless the failure was fraudulent.
Finally, the court may, in respect of a contract of insurance that has been avoided on the grounds of the insured’s fraudulent failure to disclose, disregard the avoidance and allow the insured to recover whole or part of the amount payable, if it would be harsh and unfair not to do so.
Therefore, if your insurance claim has been refused on the grounds of your alleged failure to disclose, contact Dormer Stanhope as soon as possible and our experienced team can give you guidance as to your options, and assist with objecting to your insurer’s decision.
Condition or Exclusion Clause
Commonly, an insurance contract will contain conditions or exclusion clauses that define the boundaries of when the insured is permitted to make a claim. A condition is something that must be done for a claim to be able to be made, whilst an exclusion clause is an event or circumstance which is not covered under the policy. An example of a condition in a contract for a home and contract insurance may be that the insured must have keyed locks on all windows of the premises, whilst an example of an exclusion clause in the same contract may be that there will be no cover for damage arising out of faulty design. All insurance contracts are different, and so to determine whether a condition or clause applies regard must be had to the insurance policy.
Section 54 of the Act provides a defence to an insured whose claim has been refused on the ground of non-compliance with a condition. Pursuant to section 54 of the Act, an insurer cannot refuse to pay a claim because of an act or omission, but rather they may only reduce the amount payable to the extent that their interests have been prejudiced by the act or omission. Returning to our example where the insurance policy required keyed locks, if the insured’s house was burgled and the thief entered by smashing a window, it would be open to the insured to argue that their failure to have keyed locks did not prejudice the insurer as it did not contribute to the loss and therefore the amount payable should not be reduced.
An allegation of fraud is extremely serious, and the onus is on the insurer to prove that it was more likely than not that the relevant person intended to deceive the insurer or acted with reckless indifference as to whether the insurer was deceived. There are numerous ways insurance fraud may be committed. A person may deliberately damage insured property to make a claim, include false information in a claim form, or may make false statements to the insurer intending to mislead them.
Pursuant to section 56 of the Act, where a person who is not the insured under a contract of insurance makes a fraudulent claim, the insurer may not avoid the contract but may refuse payment. However, where an insured makes a fraudulent claim, the insurer may both avoid the contract reject the claim. In some circumstances, such as where the fraud is especially serious, the insurer will refer the matter to the police for investigation and the party who committed the fraud may be charged with a criminal offence.
It is important to know that pursuant to section 54 of the Act, an insurer cannot rely on an act or failure to act in order to reject a claim, if the act or failure did not contribute to the insurer’s loss or prejudice their interests. Further, pursuant to section 56 of the Act, if a fraud is minor, and it would be unfair for the insurer to reject the entire claim, the court may order the insurer to pay such amount as if just and equitable in the circumstances.
If you have been advised that you are being investigated for insurance fraud you should seek legal advice immediately and before taking any other action. Insurers can take into account ‘relevant information’ when deciding your claim, which when dealing with fraud can be interpreted very widely. Legal assistance will enable you to determine your rights and obligations and assist with carefully constructing any correspondence with the insurer to ensure you do not inadvertently prejudice your own interests.
It is not uncommon for insurers to cancel an insurance policy during the period of cover in response to additional information provided to them that increases their risk to a level they deem unacceptable, or due to a default in payment which can often occur without the insured’s knowledge if they are utilising a direct debit arrangement for a periodic payment.
Insurers are under an obligation to provide notice if they intend to cancel an insured’s policy, however, sometimes notice is not provided or provided but not received. If your insurer has notified you that they have cancelled your policy, legal advice will help you to determine whether they had sufficient reason to cancel and whether the legally required steps to provide notice were complied with. Where you have made a claim and it has been refused because your policy was cancelled, these considerations may also be pertinent and may assist you with defending your claim against your insurer’s refusal to pay.
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