Insurer loses disclosure dispute over 'inconsistently applied' guidelines

A complainant who failed to disclose his claims history will have his claim assessed after a dispute ruling found that his insurer inconsistently followed its underwriting guidelines.

The homeowner lodged a claim on November 14 2021, under his home and contents policy, after a fire damaged his investment property.

Auto & General declined the claim, saying the insured breached his duty of disclosure by failing to inform it of previous claims he had made before taking out the policy in July 2020 and renewing it a year later.

It said if it had been aware of seven previous claims made between July 2015 and May 2020, it would not have issued him a policy based on its underwriting guidelines.

The complainant admitted to these claims but said he was unaware he was supposed to disclose them to the insurer because they related to a separate investment property and his own home, rather than the insured property.

The insurer provided the Australian Financial Complaints Authority (AFCA) with a phone call recording from the day the policy was taken out, in which the complainant is heard responding “no” to a question asking if he had “any thefts, burglaries or made any insurance claims for home and/or contents,” in the last five years.

AFCA agreed with Auto & General that the complainant breached his duty of disclosure by not informing the insurer of the claims despite knowing of them.

“I am satisfied that the complainant knew about his previous claims. I am also satisfied that the complainant knew (or a reasonable person would have known) that the claims were relevant to the insurer’s decision,” AFCA said.

“By failing to disclose the claims, the complainant breached the duty of disclosure.”

However, the ruling considered whether the insurer consistently followed its underwriting guidelines when determining whether it would have accepted the risk, had it known about the claims.

Auto & General declared that the policyholder would have been considered an “unacceptable risk” and said that if the matter were referred to its underwriting department, it “would have immediately cancelled the policy”. The underwriting guidelines defined an “unacceptable risk” as someone who had more than three claims lodged in the past five years.

But AFCA noted that the insurer “ignored” one of the complainant’s claims from August 2015 because it had not been paid. The ruling said the decision was “not consistent with the insurer’s underwriting guidelines” because there was no outlined distinction between paid and unpaid claims in the guidelines.

“The insurer did not follow its underwriting guidelines. Therefore, the complainant being outside the insurer’s underwriting guidelines does not necessarily mean it would not have offered cover,” AFCA said.

Auto & General referenced a section within its underwriting guidelines that said it was applicable “the majority of the time,” but that “exceptions to the rule” did exist, but maintained that there was “no room for discretion in this instance”.

AFCA rejected the insurer’s argument, saying Auto & General could not decline the claim based on non-disclosure and requiring it to respond to the claim as per the policy terms.

“The insurer has not provided information showing it would have refused cover if the complainant disclosed his claims history. Therefore, it would not be fair for the insurer to deny the claim on the basis of non-disclosure,” AFCA said.