In August 2016, through a broker, the insured arranged insurance on her vehicle. The vehicle was endorsed on to her existing farm package with her insurer. There were no nominated drivers added to the policy.
In August 2017, the vehicle was stolen from where it was parked overnight. The vehicle was later found burnt out. The woman made a claim for the loss. The insurer investigated the claim and discovered that ownership of the vehicle had been transferred in March 2017 to the woman’s grandson.
He was the main driver of the vehicle, and had a number of criminal and traffic convictions. Based on this, the insurer believed that the insured had failed to disclose material information. The insurer avoided the policy from March 2017, the date on which the vehicle ownership was transferred, and declined to consider the claim.
The client disputed the decision, on the basis the broker was aware that her grandson would be one of the main drivers of the vehicle. Therefore, the change in ownership was not material. She also said the broker was aware of his traffic convictions.
The case manager's assessment
The information provided when an insurance application is completed is the basis of the policy, which is a legal contract.
Both the insurer and the insured must tell each other about all of the important information relating to the proposed insurance.
That means the insured must tell the insurer about material facts such traffic and criminal convictions, vehicle modifications, previous claims history, or bankruptcy. This is called the duty of disclosure.
Information is material if it would influence the decision a prudent insurer would make about whether or not to accept an application and, if so, on what terms. Whether a particular fact is material depends upon the circumstances of the case and is a question of fact. The insurer is responsible for showing information is material.
The duty of disclosure exists when the application is completed. The duty also applies on the annual renewal of the policy. This means the customer must tell the insurer about anything which has occurred since the last renewal date.
At law, the insurer is entitled to rely on its legal rights to avoid the policy (or treat it as if it had never existed) if the insured does not tell it about material information. The IFSO cannot make a decision that ignores those legal rights, even if it does not seem fair, or has harsh results, in all of the circumstances.
The insurer did not hold a record of the application that the insured should have completed when the farm package was arranged. The insurer also confirmed that the woman did not complete an application when she arranged the policy in 2016. Instead, the insurer relied on her general obligations on renewal as well as the change of circumstances condition in the policy.
However, if she had completed the farm package application, which included vehicle cover, or a standalone vehicle cover application, she would have been asked specific questions about her criminal history, and the criminal history of anybody who would drive the vehicle. The case manager had discussions with the insurance company about the credibility of the broker, given his inconsistent recollections of the telephone call when the policy was arranged. In addition, concerns were raised about the endorsement process for adding vehicles to an existing policy, without a requirement for underwriting questions to be asked on each occasion, and the lack of process requiring any answers given in response to be provided to the insured on renewal
Following the discussions with the case manager, the insurer accepted that there had been issues with how the policy was arranged. Therefore, it agreed to reverse its decision to avoid the policy, and accepted the claim.
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