Insurer Must Pay After Unfounded Fraud Allegations

1

The claim was initially submitted in January 2022 for damage incurred to the man’s remote metal home in New South Wales. The insurer denied the claim on the grounds that the property was fraudulently misrepresented in terms of its status and functionality.

The policyholder, under heavy medication due to his illness, was questioned by the insurance company’s investigators. Unfortunately, he passed away roughly five months following the submission of the insurance claim. His estate's executor took over the complaint afterwards.

Recently, the Australian Financial Complaints Authority (AFCA) determined that the insurer, IAG, did not provide adequate evidence showing that the policyholder had breached his disclosure commitments. Thus, they must honour the claim.

According to AFCA, “Even if there had been a breach, the insurer has not convincingly shown that it resulted in the renewal of the policy when it would not have been otherwise. Thus, it is fair that the insurer accepts the claim.”

AFCA pointed out that IAG did not submit a declaration from its underwriters to either prove it would not have undertaken or renewed the policy. Despite cautions regarding potential adverse inferences, the insurer failed to provide necessary documentation on its underwriting practices pertaining to this case.

Originally, IAG contended that the policyholder had wrongly described the condition of his property upon policy initiation in October 2019, claiming it was watertight, structurally sound, secure, well-maintained, and inclusive of functional kitchen and bathroom facilities, and specifying its construction date as approximately 2019.

The policy contained a clause explicitly stating, “We don’t insure buildings under initial construction.”

AFCA’s investigation found that, as of the relevant policy renewal date in October 2021, the property's construction was completed, and it had been continuously occupied for over a year, meeting structural and maintenance codes.

“Each renewal constituted a new insurance contract,” the ombudsman declared.

Moreover, AFCA emphasized that the allegation of fraud, which carries grave implications, wasn’t sufficiently supported given that for a misrepresentation to amount to fraud, it must be made either knowingly or recklessly.

EVEN if I had determined that the policyholder breached the disclosure duty-which I have not-the insurer did not provide necessary proof to show it would not have entered the 2021-22 policy period without the alleged breach,” AFCA noted.

In their ruling, AFCA also highlighted the insurance contract and product disclosure statements omitted critical information regarding the duty to avoid misrepresentation, relevant disclosure duties, or consequences of any such breaches.

For more information on the ruling, it can be reviewed here.

This article has been adapted from one originally published by Insurance News Magazine.

Published:Wednesday, 3rd Jul 2024
Source: Paige Estritori

Share this news item:

Insurance News

Clear

Insurance Industry Calls for Liability Law Reforms as Costs Skyrocket for Entertainment Sectors

16 Oct 2025: Paige Estritori

The Insurance Council of Australia (ICA) is advocating for comprehensive reforms in liability laws to tackle rising insurance premiums, particularly impacting sectors such as live music venues, festivals, caravan parks, and amusement venues. The call comes with the release of a white paper highlighting that outdated state-based civil liability laws, untouched for nearly 25 years, are inflating costs significantly. - read more

Surge in Profits for Australian Insurers Amid Rising Premiums

15 Oct 2025: Paige Estritori

In 2024, Australia's insurance industry reported a collective after-tax profit of $6.1 billion, a significant increase from the five-year average of $2 billion. This surge is attributed to substantial premium hikes and a relatively quiet year for natural disasters. - read more

Rising Insurance Costs Challenge Australian Businesses Amid Crime Surge

15 Oct 2025: Paige Estritori

Australian businesses are confronting escalating insurance premiums, driven by a surge in break-ins and thefts. This trend is placing additional financial strain on business owners already navigating a complex economic environment. - read more

Allianz Australia Penalised for Misleading Insurance Practices

15 Oct 2025: Paige Estritori

In a significant regulatory development, Allianz Australia and its subsidiary, AWP Australia, have been fined $16.8 million for making false and misleading statements. This penalty underscores the critical importance of transparency and honesty in the insurance industry. - read more

Allianz Australia Completes Acquisition of RAA Insurance

15 Oct 2025: Paige Estritori

Allianz Australia has successfully completed the acquisition of RAA Insurance for $642 million, marking a significant expansion of its operations in South Australia. This strategic move is set to enhance Allianz's market presence and diversify its service offerings in the region. - read more

Click for more Insurance News