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Determination
Case number | 12-00-1079044 |
Financial firm | AAI Limited |
Case number: 12-00-1079044 28 August 2024
The complainant lodged a claim with Financial Firm (insurer) for damage to his vehicle.
The insurer assessed the claim and declined cover. The insurer says it declined the claim because the complainant did not provide accurate information about:
The insurer says that if the complainant had provided accurate information, it would not have offered insurance.
The insurer says that regardless of the complainant’s failure to provide accurate information, the policy specifically excludes damage or loss caused by reckless driving or unlawful purposes. On this basis the insurer says that it is entitled to decline the claim.
The complainant disagrees with the insurers decision and want the claim to be accepted. The complainant has also raised concerns with how the claim was handled and is seeking compensation.
No. The insurer has not established that the complainant made a misrepresentation when incepting the policy.
Yes. The available information supports the insurer decision to decline the claim given that a policy exclusion has been established.
Yes. The available information shows that the insurer progressed the claim appropriately under the circumstances and did not contribute to unreasonable delays.
This outcome is fair because the policy excludes damage or loss caused by reckless driving. Given that the circumstance of the loss is not disputed, the insurer is entitled to rely on exclusions in the policy to decline the claim.
However, the insurer has not established that a misrepresentation occurred therefore it must update the complainant’s claim history accordingly.
This determination is substantially in favour of the insurer.
The insurer is entitled to decline the claim and is not required to take any further action regarding the claim or complaint.
However, the insurer must amend the complainant’s claim history to remove any reference to misrepresentation as a reason for claim denial.
It is an accepted insurance principle that insurers can ask prospective policyholders questions to assess risk before offering insurance.
The party seeking insurance has a legal obligation to answer the insurer’s questions correctly, to the best of their knowledge, and take reasonable steps to avoid giving incorrect information. This requirement is set out in Section 20B of the Insurance Contracts Act 1984 (the Act) and is called ‘the duty to take reasonable care not to make a misrepresentation’.
The exchanged material confirms that the complainant plead guilty in 2020 to a fraud related offence.
The insurer says that the complainant did not disclose this information and as a result has misrepresented and breached his duty of utmost good faith. The insurer says as a result, it can rely on Sections 13 and 28 of the Act, to deny the claim.
The complainant disagrees and says he was charged in 2019. Therefore, the offence is irrelevant because the charge date was before the reportable period (three years before the policy start date). The complainant also says that the insurer has not considered that English is his second language, and he answered its questions to the best of his ability.
Because the insurer says the complainant did not provide correct information, it holds the onus to show that he did not take reasonable care to avoid a misrepresentation.
I have carefully considered that when applying for the policy, the insurer asked about the complainant’s criminal history which included the following question or variation of the question below:
In the last 3 years, have you or anyone to be insured under the policy committed any criminal act in relation to fraud, theft, burglary, drugs, arson, criminal damage malicious damage or wilful damage?
I have bolded ‘committed any criminal act’ because this is a key turning point in determining if the insurer has established that the complainant made a misrepresentation.
The exchanged material confirms that the policy issued on 22 January 2023. Thus, the question asked by the insurer relates to the period 22 January 2020, to 22 January 2023.
I am not persuaded that the insurer has established that the complainant provided incorrect information or failed to take reasonable care. This is because the the criminal act was committed prior to the reportable period (before 22 January 2020) which is confirmed in the available information including court documents provided.
I acknowledge the insurer’s view that the date of conviction was 12 November 2020, however the question asked is when the act was committed rather than the date of conviction.
This distinction is important as a lay person would not necessarily interpret the question to mean the date of conviction and would honestly answer no under the circumstances.
I am not persuaded that the insurer has established that the complainant made a misrepresentation when incepting the policy. Therefore, it is fair the claim history be amended to remove any reference to a misrepresentation.
This also means the insurer was not entitled to cancel the policy based on the misrepresentation (treating it as if it did not exist back to policy inception.) The insurer is only entitled to cancel the policy from the date of the total loss of the vehicle as outlined in the policy terms and conditions.
The policy’s Certificate of Insurance (COI) and Product Disclosure Statement (PDS) set out what the complainant is covered for in the event the insured vehicle is damaged.
The insurer says ‘reckless acts’ are not covered under the policy. The insurer says it can rely on police records, the drivers court outcome, and forensic vehicle analysis to support its position and seeks to rely on an exclusion on page 21 of the PDS:
You are not covered under any section of this policy for damage, loss, cost or legal liability that is caused by or arises from or involves:
…
Reckless acts
any reckless act by you, or by the driver of your car or any person acting with your encouragement, assistance or express or implied consent to the reckless act (such as street racing, burnouts, donuts, driving into water, illegally using a mobile phone, driving at excessive speed).
It is not disputed that the vehicle was declared a total loss after it collided with a caravan while being pursued by police.
The exchanged material also confirms that the driver was found guilty in court of serious driving offences relating to the incident.
Further, the forensic collision report supports this view and found the vehicle damage was caused by the actions of the driver, which were neither prudent nor judicious and the driver‘s pre-collision speed was the primary cause of the loss of control.
Reckless is not defined in the policy, but I agree it is accepted to mean, action without regard to, or with disregard to the consequences of the action.
The result is that I am persuaded that the vehicle was being driven recklessly at the time of the loss which is excluded under the policy.
I acknowledge the complainant says that the driver did not have permission to drive the vehicle. However, this does not assist the complainant as the commercial intention of the exclusion is not to cover the vehicle where the driver is acting recklessly. The policy does not stipulate this is only when the vehicle is driven with the owner’s permission.
This means that a lack of permission the driver had does not prevent the policy exclusion from being triggered.
Further, the complainant has confirmed that the vehicle was not stolen at the time of the loss.
In addition, after the collision the police discovered items belonging to the driver. I am satisfied that this suggests the driver had previously used the vehicle and was using the vehicle on this occasion with the complainant’s consent.
In the circumstances, it would be unfair to compel the insurer to accept the claim given the policy excludes damage caused by reckless driving.
The complainant says the insurer’s decision to declare the vehicle a write-off was unfair.
Under New South Whales (NSW) law including the Road Trasport Act 2013 (the Act) if a vehicle is categorised as a write-off, the insurer is required to submit specific information to the Written-off Vehicle Register (WOVR).
This is a legal requirement regardless of the owner’s wish. Therefore, the insurer is not required to obtain permission to list the complainant’s vehicle on the WORV.
Given the exchanged material, I accept that the vehicle was a write off and consistent with its legal obligations the insurer was required to register the vehicle on WORV.
I have also considered the complainant’s request that the insurer pay the cost of vehicle registration and the cost of a missing item.
It would be unfair to compel the insurer to pay registration as this was an expense the complainant would occur regardless of the policy coverage. Additionally, there is no information to support the view that the insurer removed an item from the vehicle. The insurer has provided photographs of all items recovered at the collision.
In the absence of information to show the item was removed or taken it would be unfair to ask the insurer to cover the cost of this item or pay the cost of registration.
Under the AFCA Rules, we can award up to $6,300 compensation per claim for non-financial loss. We will only award this type of compensation if the complainant suffers an unusual degree of stress, inconvenience, or delay because the insurer mishandled the claim.
I am not persuaded that awarding compensation in this complaint would be a fair and reasonable outcome.
The available information including timeline of events and contact notes shows that the insurer progressed the claim appropriately under the circumstances.
I acknowledge the complainant’s view that he had to wait for an outcome while the insurer completed its investigation and empathise that he found this to be stressful and inconvenient.
However, I consider that all claims have a degree of inconvenience, and I accept that this inconvenience can reasonably be expected.
Additionally, it is an accepted insurance law that insurers are entitled to investigate a claim including asking the insured party to take part in interviews. Considering the complainant‘s claim was for a total loss vehicle, involved a driver, other than the complainant, police investigation and court proceedings, I am persuaded that the insurer’s enquiries are fair and reasonable.
Finally, I have carefully considered if the insurer incorrectly decided that the insurer‘s decision regarding misrepresentation at policy inception is grounds to award compensation. Considering the policy was cancelled after the vehicle was declared a total loss means the complainant has not suffered an additional loss. This is because regardless of the alleged misrepresentation the insurer was entitled to decide the claim based upon the exclusion for reckless driving.
In this instance an appropriate remedy in recognition of the insurer’s error is that the claim record be amended to reflect the claim outcome rather than an award of compensation.
Therefore, if both parties accept my assessment the insurer must update the complainant‘s claim history accordingly.
This outcome is fair because it is based on all the available information provided by each party.
Given the policy specifically excludes damage or loss caused by reckless driving and the circumstance of the loss is not disputed, it would be unfair to compel the insurer to accept indemnity for the loss.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all the information the parties have provided.
While the parties have raised several issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
