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Problems calculating the excess

Pradeep has an equipment hire business. In 2018, when Pradeep came to collect the equipment from a building site, some of it was missing. Pradeep contacted his insurance broker who put the insurer on notice that Pradeep may make a claim but indicated that Pradeep was going to try to get his customer to compensate him for the loss.

Two years later Pradeep was in the same position again. When Pradeep arrived to collect the equipment, some of it was missing. Again, Pradeep attempted to get his customer to cover the loss. When the customer refused, Pradeep remembered that he had insurance for his equipment that was lost or stolen while out on hire.

Pradeep contacted his broker who advised him to make a claim for both events. Pradeep’s broker submitted the claims but warned Pradeep that the insurer may decline the 2018 claim because of the time taken to submit it. Both claims were for about $20,000 each.

The insurer assessed and declined the claims relying on a policy exclusion for unexplained disappearances. The policy did not cover loss caused by:

Unexplained disappearances, shortages revealed only by taking of an inventory or shortages due to clerical or accounting errors.

The insurer also noted that it was impossible to determine the excess because the building sites had been burgled on multiple occasions and Pradeep could not point to a particular event when his equipment had been stolen. The insurer needed to know how many ‘events’ gave rise to the loss so they could calculate the excess.

Pradeep did not accept the insurer’s decision and complained to FSCL.


Pradeep did not agree the exclusion clause relied on by the insurer applied to his loss and was very disappointed that the insurer appeared to be relying on a technicality to decline the claim. Pradeep said he had always been upfront with his broker that equipment could be out on long term hire, and it was impossible for him, after the event, to know when the items were stolen.

The insurer said that because Pradeep discovered the loss when checking the hired equipment back onto his yard the loss fell within the unexplained disappearance clause. The insurer also noted that one of the building sites had reported to the police 50 different occasions where items had been stolen. The excess on Pradeep’s policy was $1,000. Although the insurer could not know on how many occasions Pradeep’s items had been stolen, it was conceivable that there were multiple events.


We were not convinced that the insurer could rely on the unexplained disappearances clause to decline Pradeep’s claim. It was our view that the phrase ‘unexplained disappearances’ was coloured by the words coming after it, suggesting loss discovered during an inventory or stock take was not covered. The loss in this case was not discovered during an inventory or stock take, but rather was discovered when Pradeep collected his equipment from the building site. We also observed that unless you catch a thief red-handed, most theft is unexplained.

We agreed that calculating the excess was problematic and asked if the insurer would be prepared to pay Pradeep half the most recent claim, being $10,000, on a fair and reasonable basis. The insurer agreed, but Pradeep considered it unfair that the 2018 loss was not included in the settlement. Pradeep said he was inconvenienced by having to submit a claim when the insurer intended declining the claim on the grounds of delay.


It was our preliminary decision that, in the circumstances, the insurer’s offer of $10,000 was reasonable. Calculating the excess was impossible and splitting the loss for the second claim equally seemed the fairest way of resolving the complaint. We did not include the 2018 loss in the settlement because, in our view, if Pradeep had pursued the complaint more quickly, he would have discovered the excess problem sooner and could have taken steps to avoid the future loss. The insurer had been prejudiced in investigating the claim by Pradeep’s delay.

After further consideration, Pradeep accepted the $10,000 offered by the insurer.

Insights for consumers

We encourage consumers to submit insurance claims promptly. The longer you take, the more difficult it is for your insurer to assess your claim. It was great to see an insurer prepared to take a pragmatic approach and agree to a ‘fair and reasonable’ resolution.