Insurer Must Pay After Unfounded Fraud Allegations

1

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

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

Please Note: If this information affects you, seek advice from a licensed professional.

Share this news item:

Insurance News

Clear

Suncorp Reaches Maximum Reinsurance Retention Following Severe Storms in Queensland and NSW

11 Dec 2025: Paige Estritori

Recent supercell thunderstorms in South East Queensland and northern New South Wales have led to a surge in insurance claims, prompting Suncorp to reach its maximum reinsurance retention of $350 million. The insurer has reported over 10,000 claims related to these events, with approximately half pertaining to home damages and the other half to motor vehicles. - read more

NTARC Report Identifies Inattention and Speed as Primary Factors in Major Truck Crashes

11 Dec 2025: Paige Estritori

The National Truck Accident Research Centre (NTARC) has released its latest Major Incident Investigation Report, highlighting inattention, distraction, and inappropriate speed as the most frequent human factors behind major truck crashes in Australia. While there has been a modest reduction in these incidents compared to previous years, they continue to pose significant risks to road safety. - read more

Rising Mental Health Claims Reshape Australia's Insurance Landscape

10 Dec 2025: Paige Estritori

The Australian insurance industry is witnessing a significant shift as mental health conditions have become the leading cause of total and permanent disability (TPD) claims. Recent data from the Council of Australian Life Insurers (CALI) indicates that mental health issues now account for nearly one-third of all TPD claims, marking a substantial change in the industry's claim patterns. - read more

Australian General Insurers Achieve $6 Billion Profit Amid Fewer Natural Disasters

10 Dec 2025: Paige Estritori

In a remarkable turnaround, Australian general insurers have reported a combined profit of $6.1 billion over the past year. This substantial increase is attributed to a period of relative calm in natural catastrophes and robust investment returns. - read more

Australian Life Insurers Under Review for Mental Health Exclusion Practices

10 Dec 2025: Paige Estritori

Recent findings have revealed that certain Australian life insurers continue to implement blanket exclusions for mental health conditions, a practice that contravenes the industry's code of practice. This has raised significant concerns about the fairness and legality of such exclusions. - read more

Click for more Insurance News