What can I do if my home and/or contents insurance claim is refused?
Nicola and Matt have been living in their home for the last 15 years. Nicola and Matt were sitting at home during heavy rain one weekend. Nicola noticed water coming through the front door. Matt went outside and noticed that a drain was overflowing. The water kept coming in even though Nicola had used every towel in the house to try and soak it up. Then it got worse! The house started to flood. The carpet was ruined, furniture ruined and worse now the house was on a slant.
Nicola and Matt put in a claim with their insurer, BIG INSURANCE COMPANY. Big Insurance Company has rejected the claim saying that flood is excluded.
This fact sheet is an overview of some common reasons why an insurer may refuse your claim. Get legal advice for your specific situation.
If the insurer has refused your claim this refusal must be in writing.
If the insurer telephones you and tells you your claim has been refused, ask them to put it in writing.
You have five options once your insurance claim has been refused:
1. Complain in writing to your insurer’s Internal Dispute Resolution (IDR) Department
2. Complain to the General Insurance Division of the Financial Ombudsman Service (FOS) (they will usually require you to complain to the insurer’s IDR department first)
3. Apply to the appropriate tribunal for consumer claims if one exists in your state
4. Go to Court
5. Do nothing/Give up
If English is your second language you should consider using an interpreter to assist with completing the claim form or a complaint even if you speak some English. Remember that the insurance policy is a contract and the refusal of the claim is a legal dispute.
NOTE: Both the Financial Ombudsman Service and the State consumer tribunals cannot accept claims over a certain monetary amount. If your claim exceeds the appropriate amount you will need to go to Court or reduce your claim to the maximum allowed at FOS or Tribunal. Note that there are no legal costs at FOS. Get legal advice before doing this.
If your complaint to your insurer’s Internal Dispute Resolution Department has been rejected, it is recommended that you then proceed with raising a dispute with the FOS because:
- It is free
- It is independent
- It can make a determination that is binding on the insurer. This means if FOS decides the insurer has to pay then it has no choice.
- You don’t have to accept the determination if you don’t want to. If the decision goes against you then you can still go to the Tribunal or Court to pursue your case.
If you want to give up get legal advice before you do so.
To lodge a claim call FOS on 1300 78 08 08 or visit their website www.fos.org.au to get the relevant forms.
IMPORTANT: YOUR TIME LIMIT TO LODGE A COMPLAINT IN FOS WILL EXPIRE ON THE EARLIEST OF:
- 2 years from the date you receive a letter rejecting your claim from the insurer’s Internal Dispute Resolution Department; or
- 6 years from when you first became aware or should have reasonably become aware of your loss (e.g within 6 years from the date of the motor vehicle accident, theft or flood).
FOS generally will not grant the right to lodge a disptue outside this time frame without the agreement of the insurer. When you lodge your complaint you will be asked to fill in a form called a “notice of referral”. You must complete and return this form by the date specified or you may lose your right to complain to FOS.
For more information on the complaints process call FOS yon 1300 78 08 08 or visit their website www.fos.org.au
The Main Types of Refusals
There are four main reasons for refusal:
1. Non-disclosure – you have not disclosed information when you applied for or renewed the policy.
2. Operation of a condition or exclusion clause – you have failed to comply with an insurer’s requirement or the policy does not cover the loss.
3. Fraud – the insurer believes you have acted fraudulently in some way.
4. Policy cancellation.
You are under a duty to disclose relevant information when you took out the policy, or when you renewed, if you did not provide accurate or comprehensive information the insurer may be able to reject your claim.
Some common examples of non-disclosure are:
- Not disclosing all prior insurance claims (e.g. burglaries)
- Not disclosing criminal offences (e.g. arson)
- Not disclosing existing damage (e.g. existing roof damage).
There are two ways that you are required to disclose information:
1. When the insurer asks you specific questions.
2. When there is information you know or should have reasonably known which would be relevant to the insurer’s decision to accept the policy.
You are not required to disclose:
- Something you don’t know
- Something that reduces the insurer’s risk
- Something that is common knowledge
- Something that the insurer knows or ought to know
- Where the insurer has waived your need to comply.
The Insurance Contracts Act limits the circumstances in which your claim can be denied as a result of disclosure:
- The insurer has a duty to clearly inform you of the nature and effect of your duty to disclose. If they have not done this they cannot rely on your non-disclosure to refuse a claim.
- If you failed to disclose something when the policy was taken out, or at renewal, the insurer cannot reject your claim unless it can show that it would have refused to provide you with insurance if it had known the missing information. If, for example, the insurer would have given you insurance cover had it known about your recent claims history, but would have charged a higher premium, then the insurer cannot reject on the basis of the non-disclosure (although it can still require you to pay a higher premium). The only way to find out if the insurer would have proceeded with the insurance is to get a copy of the insurance company’s underwriting guidelines. Insurers may not want to do this. If so, you should complain to FOS who will require the insurer to prove it would not have provided you with insurance cover in the first place.
- If you failed to notify the insurer of something that happened during the period of cover under the policy, the insurer can only rely on your non-disclosure to refuse or reduce your claim if it can demonstrate that it has been prejudiced by your non-disclosure.
The responsibility for proving that a non-disclosure allows the insurer to reduce or deny your claim is with the insurer.
So, if your claim has been refused on the basis of non-disclosure then you need to:
a) Write to the insurer and ask it to specify what information was not disclosed. You may wish to argue that you did in fact disclose the missing information, or that it was reasonable in the circumstances not to disclose because of something the insurer did or did not ask or tell you.
b) If you did not disclose the information, ask the insurer to provide a copy of its underwriting guidelines to show whether it would have provided you with insurance cover or not if you had provided them with the relevant information.
c) File your complaint with FOS before any time limit expires, in case the insurer does not respond in time or delays in providing you with a copy of the underwriting guidelines.
REMEMBER: WHEN YOU ARRANGE AN INSURANCE POLICY OVER THE PHONE THE CALL IS OFTEN RECORDED. THE INSURANCE COMPANY WILL THEREFORE OFTEN HAVE VERY GOOD EVIDENCE ABOUT WHAT WAS SAID AT THE TIME. THE INSURER IS ALSO REQUIRED TO SEND YOUR POLICY INFORMATION TO YOU IN WRITING WITHIN 14 DAYS WHICH WILL USUALLY CONTAIN A SUMMARY OF WHAT YOU HAVE DISCLOSED FOR YOU TO CHECK AND CORRECT IF NECESSARY.
2. Operation of a condition or exclusion clause
Insurance contracts often contain conditions and exclusion clauses.
Examples of conditions include:
- You must maintain your house to ensure that it is in good condition
- You must have keyed locks on all windows and deadlocks on all external doors.
You need to check your policy to find out what the applicable conditions are.
The insurer may refuse your claim if you have failed to comply with a condition. However, Section 54 of the Insurance Contracts Act states that the insurer cannot refuse to pay a claim because of some act or omission by you unless the insurer’s interests have been prejudiced by that act. For example, if you have failed to have keyed locks on all windows and a thief enters your premises by smashing a window, or knocking down the front door, you may be able to argue that your failure to install or maintain the window locks has not prejudiced the insurer because it did not contribute to the loss or damage suffered as a result of the break in.
Most insurance policies also contain exclusions. An exclusion is a situation or event that is NOT covered by the policy. Some examples of events that may be excluded are:
- Fair wear and tear
- Damage arising from faulty construction/design
- Subsidence, erosion and seepage
Some of the more common exclusions are discussed below.
To rely on an exclusion clause the insurer has to prove on the balance of probabilities that the exclusion clause applies. In some cases the insurer may also have an obligation to bring the exclusion clearly to your attention, although this does not need to be done in person. It would usually be sufficient to include this information in the documentation sent to you when you took out the policy.
Most insurers do not cover damage caused by flood, or severely restrict the circumstances in which they will pay. Flood is usually defined as the covering of normally dry land by water escaping or overflowing from a natural or man made watercourse – in simple terms this usually means water overflowing from sources such as rivers, canals or stormwater drains. It is distinguished from damage caused by rainwater or stormwater, that is, rain that accumulates on the ground because of the severity of the storm.
If your claim is rejected because the insurer says it was caused by flood then you need to get advice because:
(a) Sometimes the insurer agrees to pay claims anyway when many people are affected
(b) If the damage is caused by both rainwater and flood then you may still be able to get your claim paid where, for example, the rainwater entered your house first or the damage was caused by rainwater coming through a hole in the roof (even if floodwater entered the house as well).
(c) If the water that entered your house and caused the damage was a combination of both floodwater and rainwater then the doctrine of “proximate cause” applies. This means that you are not covered at all (not even 50/50 if the water was half rainwater). The doctrine says that where damage is the result of two causes under the policy, one covered and one excluded, then the insurer does not have to pay the claim.
For more information please see our Flood insurance factsheet.
What if I had a defect in my home I was unaware of?
Insurers sometime deny claims because they say that the damage was caused by a pre-existing defect in the property (for example, that the roof let water in because it was poorly constructed). Section 46 of the Insurance Contracts Act provides you with an argument against this. Section 46 states that if you were unaware of the defect when you entered the insurance contract (and a reasonable person in the circumstances would not have been aware of it) then the insurer cannot refuse the claim.
Wear and tear/damage over time
The insurance policy will often exclude “wear and tear” and damage caused by the failure to maintain the home. For example, a storm may blow tiles off your roof. The insurer may refuse to pay the claim if your house was old and the tiles needed replacement anyway because of their age. Insurance policies are not a substitute for failing to maintain your home.
If the insurer rejects a claim because of wear and tear then you need to try to get the following evidence:
- Evidence to show that the damage was caused by a storm or other event covered by the policy.
- Evidence of regular maintenance work and inspections.
- The state of repair of the home generally.
To establish fraud the insurer needs to prove that you intended to deceive the insurer or acted with reckless indifference as to whether or not the insurer was deceived.
If fraud is established by the insurer then it can reject your insurance claim and void your policy. This means you no longer have insurance cover. In serious cases, the matter may be referred to the police for investigation and you may be charged with an offence.
The insurer cannot rely on fraud if the fraud was minor and it would be unfair for the insurer to reject the claim.
Insurers are always on the lookout for fraud. To avoid being investigated:
- Be cooperative
- Provide all relevant details
- Provide evidence (e.g. witnesses, photos)
If you are being investigated for fraud, get legal advice immediately.
Under section 3.4 of the General Insurance Code of Practice, the insurers have agreed that they will only take into account “relevant information” when deciding on your claim. In the context of fraud this can be interpreted very widely. You should complain to the insurer if you think the information requested is excessive or irrelevant and/or the investigation is taking too long – see “What to do when you are in claim limbo” for a Sample Letter about making a complaint about delay. Try to be assertive but not rude or aggressive as this will only put the insurer and/or investigator offside.
If you are being investigated by the insurer, some tips include:
- Trying to remain calm
- Taking your time to think through questions before answering them
- Asking for a break if you need one
- If your interview with the investigator is being recorded, asking for a digital copy of the interview or transcript
- Not signing anything you are unsure of
- Seeking legal advice before and after the interview
In FOS, a Referee decides all disputes where fraud has been alleged. The Referee may request additional information from you or the insurer and, where appropriate, interview you or other willing witnesses in person.
4. Policy Cancellation
Insurance companies sometimes cancel insurance policies in the middle of the period of insurance cover. This may be done in response to additional information provided by you that increases the insurer’s risk to an unacceptable level. Another very common reason is that you have failed to pay the premium for the policy. This is particularly likely if you have opted to pay your premium in instalments via direct debit and your direct debit has failed.
If your insurer tells you that your policy has been cancelled, you should get advice about whether they had sufficient reason to cancel the policy and whether they took appropriate steps to inform you of the cancellation in accordance with their legal obligations. If you wish to dispute their decision to cancel the policy, or argue that they have not properly notified you of the cancellation, you can make a complaint to FOS.