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We have had several instances recently where insurers have advised that a claim has been accepted, and we have notified our client, and then a little way down the track, they have reversed that decision, having received a loss adjuster's report.

In the most recent case, the claim was for water damage, and, having confirmed acceptance, the insurer themselves engaged a cleaning company to clean and dry the area.

This had already been done when they advised that they were not going to accept the claim after all.

Our client is now being charged those cleaning costs, which, if the claim had been accepted, would have been included as part of the excess (costs were actually less than the excess).

I've been told that legally, if the client hasn't suffered any loss as a result of the initial acceptance, then the insurer does not have to honour the acceptance....could you clarify this for me please.

The issue in this case is that if the client had been told at the outset that this was not a valid claim, she likely would not have incurred the cost of a cleaning company herself, and therefore we believe that the insurer should pay this cost. What are your thoughts?

Reply:  Crossley Gates

I will assume the initial acceptance of the claim was an innocent error based on the limited information available and the subsequent declinature is legally correct - the claim never was covered.

Working backwards, if the claim never was covered the subsequent declinature of it is not a breach of contract. It is in accordance with the contract. Does the initial acceptance of the claim give the insured any legal rights?

The insurer made a representation to the insured that the claim was covered. Ultimately, this representation was incorrect. If the insured changed her position in reliance on this to her detriment, (perhaps made some financial commitment) then the insurer ie: stopped from denying its representation and must recompense the insured. It sounds like this didn't happen here. The insurer went ahead and contracted a company to clean the premises. That contract is probably between the insurer and the contractor. I don't see how the insurer can now “assign” that contract to the insured. The insurer will have to meet it. Unless there was some element of lack of good faith by the insured that led to the initial incorrect position, the insurer is simply stuck with that position. At least it doesn't have to pay the balance of the claim.

December 2020

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