Mirae runs a small construction company. As Mirae’s business grew she contacted an insurance adviser to take out public liability insurance. The adviser sent through the policy documents, invoice and a form requesting further information about Mirae and her business. Mirae paid for the insurance but did not return the form asking for further information.
Six months later, Mirae was driving a large truck towing a small digger when she drove into a deep gully. The accident caused significant damage to the truck and digger causing $60,000 worth of damage.
Mirae made a claim with the insurance adviser who, with help from the insurance underwriters, investigated the claim. A private investigator was hired to report on the circumstances of the crash and assist with obtaining Mirae’s traffic and criminal conviction history.
As part of the investigation, a number of traffic and criminal convictions, along with insolvencies in Mirae’s name were found to have not been disclosed, either at the start of the policy or at the time of the claim. The driving offences were extensive and included 6 losses of licence for demerit points in the last 5 years and over $25,000 in unpaid fines dating back several years.
Based on this newfound information, the insurance underwriter decided to void Mirae’s policy from its very start. That is, the policy was deemed to have never existed at all. All the premiums Mirae had paid were refunded.
Mirae said that the insurance adviser failed to inform her that she needed to disclose her traffic or criminal convictions, previous bankruptcies, liquidations, or receiverships at the time she purchased the insurance. She said that they never asked her for this information, nor did she receive the form requesting further information.
The insurance adviser acknowledged that no questions were asked in the initial phone call with Mirae about her criminal history but showed evidence that he had sent Mirae a copy of the application form to check that all the information, including information about previous convictions, was correct. The insurance adviser argued that if he had known about Mirae’s previous convictions and bankruptcies he wouldn’t have been able to find insurance for her.
Mirae complained to FSCL about the insurance adviser’s advice and the voiding of her insurance policy.
Insurance contracts are contracts of good faith. ‘Good faith’ means that both parties (the insurer and the insured) are obliged to observe and honour the contract (policy) conditions. Any information (or disclosure) an insured exchanges with the insurance company must be truthful to the best of their knowledge.
As the insured, Mirae’s ‘duty of disclosure’ was to tell the insurer about any relevant information (the insurance industry calls this ‘material facts’) that could affect the insurer’s assessment of the risk they are taking in insuring her property. If the insurer thinks Mirae did not disclose some material facts, they can invalidate her policy and deny her insurance claim (as the insurance company eventually did).
The insurance underwriter said that they considered both Mirae’s criminal and traffic convictions and bankruptcies to be material information. They said that if they had been advised of these at the start of the policy, they would have declined to provide Mirae with insurance.
We decided that Mirae did not disclose material facts. Even if Mirae had declared her convictions and insolvencies, we were satisfied that Mirae would not have been able to obtain insurance cover with any insurer.
We accepted that the insurance adviser failed to ask Mirae the relevant questions about previous convictions when she took out the policy, which would have been best practice, but we did not believe that this affected the outcome of the claim. We accepted that the non-disclosures would have still been discovered when the claim was lodged.
We also considered that the insurance underwriter was correct in voiding Mirae’s policy from its commencement, as she failed to declare material information when she took out the policy.
Insights for consumers
The Fair Insurance Code 2020, which encourages good conduct and professionalism in the insurance industry, gives examples of material information that insurers may need to know. The examples include:
- any criminal convictions, unless you have a statutory right not to disclose them
- any previous refusal by an insurance company to insure you
- any previous claims, including any claims that were declined by an insurance company
- Any current or previous bankruptcy, receivership or liquidation.
The law does not currently distinguish between ‘an innocent mistake’ and a deliberate attempt to mislead an insurer. Therefore, it is important to be completely truthful when you complete an application for insurance.
The duty to give information is not limited to the questions on the application form.