A business owner runs a small construction company. As their business grew they contacted an insurance adviser to take out public liability insurance. The adviser sent through the policy documents, invoice and a form requesting further information about them and their business. The business owner paid for the insurance but did not return the form asking for further information.
Six months later, the person was driving a large truck towing a small digger when they drove into a deep gully. The accident caused significant damage to the truck and digger causing $60,000 worth of damage.
The person made a claim with the insurance adviser who, with help from the insurance underwriters, investigated the claim. A private investigator was hired to report on the circumstances of the crash and assist with obtaining the person’s traffic and criminal conviction history.
As part of the investigation, a number of traffic and criminal convictions, along with insolvencies in the person’s name were found to have not been disclosed, either at the start of the policy or at the time of the claim. The driving offences were extensive and included 6 losses of licence for demerit points in the last 5 years and over $25,000 in unpaid fines dating back several years.
Based on this newfound information, the insurance underwriter decided to void the person’s policy from its very start. That is, the policy was deemed to have never existed at all. All the premiums the person had paid were refunded.
The person said that the insurance adviser failed to inform them that she needed to disclose her traffic or criminal convictions, previous bankruptcies, liquidations, or receiverships at the time they purchased the insurance. They said that they never asked for this information, nor did they receive the form requesting further information.
The insurance adviser acknowledged that no questions were asked in the initial phone call about their criminal history but showed evidence that he had sent the person a copy of the application form to check that all the information, including information about previous convictions, was correct. The insurance adviser argued that if he had known about the previous convictions and bankruptcies he wouldn’t have been able to find insurance for her.
The person complained to FSCL about the insurance adviser’s advice and the voiding of the insurance policy.
Insurance contracts are contracts of good faith. ‘Good faith’ means that both parties (the insurer and the insured) are obliged to observe and honour the contract (policy) conditions. Any information (or disclosure) an insured exchanges with the insurance company
must be truthful to the best of their knowledge.
As the insured, the customer’s ‘duty of disclosure’ was to tell the insurer about any relevant information (the insurance industry calls this ‘material facts’) that could affect the insurer’s assessment of the risk they are taking in insuring her property. If the insurer thinks the customer did not disclose some material facts, they can invalidate her policy and deny her insurance claim (as the insurance company eventually did).
The insurance underwriter said that they considered both the person’s criminal and traffic convictions and bankruptcies to be material information. They said that if they had been advised of these at the start of the policy, they would have declined to provide insurance.
FSCL decided that the customer did not disclose material facts. Even if they had declared their convictions and insolvencies, FSCL was satisfied that the customer would not have been able to obtain insurance cover with any insurer.
FSCL accepted that the insurance adviser failed to ask the customer the relevant questions about previous convictions when she took out the policy, which would have been best practice, but did not believe that this affected the outcome of the claim. FSCL accepted that the non-disclosures would have still been discovered when the claim was lodged.
FSCL also considered that the insurance underwriter was correct in voiding the policy from its commencement, as the customer failed to declare material information when they took out the policy.
The Fair Insurance Code 2020, which encourages good conduct and professionalism in the insurance industry, gives examples of material information that insurers may need to know. The examples include:
• any criminal convictions, unless you have a statutory right not to disclose them
• any previous refusal by an insurance company to insure you
• any previous claims, including any claims that were declined by an insurance company
Any current or previous bankruptcy, receivership or liquidation.
The law does not currently distinguish between ‘an innocent mistake’ and a deliberate attempt to mislead an insurer. Therefore, it is important to be completely truthful when you complete an application for insurance.
The duty to give information is not limited to the questions on the application form.
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