Insurance disputes

Insurance Lawyers

Why insurance claims are denied

Because insurance companies aim to maximise profits, the fewer claims they pay out, the bigger the profits.

There are several reasons a claim may be denied, including non-disclosure, exclusion clauses, fraud, policy cancellation and non-insured loss.

Non-disclosure

When an insured party fails to disclose every matter known to them that is relevant to the insurance company’s decision whether to accept the risk, that failure to disclose material information is likely to be classified as an act of non-disclosure.

Under the Insurance Contracts Act 1984 (Cth), the insured party has a duty to provide all information that a reasonable person would know to be relevant to an insurance company.

However, the duty of disclosure does not require disclosing information that diminishes the insurance company’s risk, that is common knowledge, or that the insurer should know.

Common examples of non-disclosure include not disclosing prior insurance claims or existing damage to property.

Exclusion clauses

The insurance company may claim that certain clauses in the policy exclude coverage for the type of loss suffered or the particular event that caused the loss.

Exclusions may include depreciation, storm damage, intentional damage, government seizure or vermin damage.

Fraud

The insurance company may claim the insured party acted fraudulently in some way.

If only a minimal or insignificant part of a claim is made fraudulently, the insurer may be ordered to pay the remainder of the claim.

Policy cancellation

The insurance company may cancel a policy for a specific reason. A common reason is non-payment of premiums, but cancellation may also be in response to additional information provided by the insured party that raises the insurance company’s risk to an unacceptable level.

Non-insured loss

The insurance company may claim that the particular damage or loss (for which compensation is being sought) was caused by an event not covered by the policy.

Insurance Lawyers

Resolving insurance disputes

Options to resolve an insurance dispute include internal review, external review by the Australian Financial Complaints Authority (AFCA) and court proceedings.

Internal review

Using an insurance company’s internal dispute resolution process should be the first step to resolve a dispute.

Under the General Insurance Code of Practice, when a claim is denied, the insurance company must provide written reasons for the decision, information on complaints handling procedures, and (if requested), reports from service providers that were relied upon to make the decision.

If the dispute is not resolved, the AFCA may be approached.

Australian Financial Complaints Authority

The AFCA is an external dispute resolution body that is free for insured parties.

A decision made by the AFCA is binding on an insurance company if the insured party accepts the decision.

An insured party may take legal action if they do not agree with a decision.

Court proceedings

When an insurance dispute cannot be solved through internal or AFCA dispute resolution processes, legal action may be unavoidable. If a third party has contributed to the loss and damage, the insurance company may be able to run a crossclaim against that party.