Twenty-four years of insurance complaints reveal the prima facie claim is still a mystery to many clients, and the Latin probably doesn’t help. A prima facie claim is what the insured must prove in the first instance - that they have suffered a sudden, unexpected loss, which is covered by the policy.
About 20% of general insurance complaints to the IFSO Scheme involve the insured being unable to prove a prima facie claim.
“Financial advisers have a really important role in educating their clients about the claim process and what clients must prove to get their claim paid,” says Karen Stevens, Insurance and Financial Services Ombudsman. “We hear from a lot of unhappy clients, who are surprised that it’s on them, not the insurer, to prove their loss and provide the evidence. It’s a good idea to set these expectations early, before clients need to make a claim.”
Add value for your clients
• Encourage them to gather proof of ownership and value when they take out the policy, and review at renewal
• Explain their obligations to provide evidence for a claim
• When assisting clients with a claim, ask them whether they have evidence to demonstrate that the claim is within the scope of
the policy
• If a client is challenging a claim decision, ask them what evidence they have to challenge the insurer’s decision, and explain that it’s likely they will have to provide some evidence for the insurer to change its position.
Proving the loss, and the cause of the loss
In December 2016, Tom* and Sue* made a house insurance claim for a broken water pump and bore. The insurer asked for a repair report to show why the bore had stopped pumping water. But Tom and Sue said the pump was stuck 35 metres underground and couldn’t be retrieved. The insurer declined the claim on the basis a prima facie claim hadn’t been established for loss or damage to the pump and bore. Tom and Sue said it was impossible to show what happened to the pump, because it was stuck in the bore. They complained to the IFSO Scheme.
Under the policy, Tom and Sue had to show the damage was both sudden and unexpected. Although the pump was not accessible, they hadn’t been able to provide any information about why the pump and bore stopped pumping water. The insurer was entitled to decline the claim.
LESSONS
• Clients often expect insurance to cover all unexpected events
• Clients often don’t realise they have an obligation to prove the loss
• Clients may expect the insurer to pay for any expert reports to prove the loss.
Proving the damage was accidental, and the cause of the damage
Dave* phoned his insurer to report his car was missing from his rural home. Dave said he’d noticed the keys were missing from the kitchen table and phoned the police. Later that day, Dave phoned his insurer again to confirm the police had found the car down a bank not far from his house. He made a claim for the damage.
The insurer didn’t believe Dave. It believed he’d pushed the car down the bank, in the hope the car wouldn’t be found within 10 days and, therefore, would trigger a full agreed value payment of $30,000. The insurer declined the claim on the basis the damage was not “accidental”, and that Dave had breached his duty of utmost good faith. Rather than alleging fraud, the insurer said Dave hadn’t established a prima facie claim. The insurer cancelled the policy, and Dave complained to the IFSO Scheme.
In order to prove the prima facie claim, Dave had to show the damage was “accidental”. The insurer relied on a body of circumstantial evidence to decline the claim and support its conclusion that Dave had pushed the car down the bank.
However, the IFSO Scheme case manager said there was no direct evidence to support a finding that Dave pushed the car down the bank. The insurer hadn’t assessed the vehicle or its value.
As the insurer hadn’t provided sufficient evidence to support such a serious allegation, the case manager found it was not entitled to decline the claim. The case manager also found the obligation was on Dave to prove that the damage was a direct result of the car going down the bank, and that the insurer would be entitled to assess any other damage in accordance with the policy.
After the complaint, the insurer assessed the car, which showed substantial mechanical damage. The insurer asked Dave to show the mechanical damage was caused by the accident. Dave couldn’t prove this, so the insurer only paid for the panel damage, which Dave could demonstrate was caused by the accident.
LESSONS
• Clients must prove that the loss was caused by the event claimed for
• Clients must provide detailed evidence of loss, including any issues around causation
• Insurers may rely on the insured failing to prove a prima facie claim when it has suspicions about the legitimacy of the claim.
“Financial advisers can really add real value for their clients,” Stevens said. “The best time to set expectations around insurance is before they need it. If you can help prepare your clients for the unexpected, they will be grateful to have insurance cover when the time comes.”
