Disclosure dispute under new duty delivers property owner win

A property owner who didn’t reveal six previous claims due to her interpretation of a renewal question has won a dispute after the insurer was unable to show she had failed a duty around not making misrepresentations.

The insurer declined a claim lodged on January 26 for rental property storm damage, arguing that if it had known of her claims history it wouldn’t have renewed the policy.

The Australian Financial Complaints Authority (AFCA) says it was undisputed that the complainant had six claims for home or contents during the past five years across various other properties.

But she answered “no” in response to a question on whether there had been any home and contents claims during the period when renewing the policy in dispute, saying she believed the inquiry related only to the specific property being covered under that insurance.

The disputed cover was taken out on September 14 2020 and renewed on October 17 last year, by which time a previous duty of disclosure had been replaced by a duty “to take reasonable care not to make a misrepresentation”.

Any alleged breach of a disclosure duty at policy inception was not relevant to the complaint because each renewal is a new contract of insurance, AFCA said.

Insurer Auto & General says the question asked was clear and unambiguous and it provided AFCA with a screenshot showing a line appearing at policy inception that said the response should “include any claims for investment/tenanted properties”.

AFCA says the line wasn’t included in the renewal documents and it was “not satisfied it is reasonable to expect the complainant to remember the clarification text from a year earlier”.

The clarification could be seen to be an acknowledgement by the insurer of the question being open to interpretation, and the insurer hadn’t explained why the complainant’s interpretation should be considered unreasonable, it says.

“I accept the complainant did interpret the question in the way she says she did,” the decision says. “The insurer has not provided an explanation of why, considering her interpretation of the question asked, the answer the complainant gave was caused by a failure to take reasonable care.”

AFCA ordered the insurer to offer to reinstate the policy, allowing the complainant to pay any applicable premium and to proceed with the claim if she chooses.

The woman said the policy cancellation was during an embargo period, making it difficult and expensive to obtain alternative insurance, and sought reimbursement for the cost of new cover obtained.

But AFCA says it’s not satisfied the denial of the claim was unreasonable to the extent compensation of non-financial loss would be warranted, and it’s not possible to know by how much, if at all, the cancellation affected premiums paid for the new cover.

The decision follows Insurance Contracts Act changes effective from October 5 last year that replaced a duty to disclose “every matter” that a reasonable person would expect to be relevant with the duty around misrepresentations.

Royal Commissioner Kenneth Hayne recommended the change, which he said “places the burden on an insurer to elicit the information that it needs”. At the same time the duty “does not require an individual to surmise or guess what information might be important to an insurer”.

The AFCA decision is available here.