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Determination
Case number | 12-00-1074272 |
Financial firm | AAI Limited |
Case number: 12-00-1074272 11 October 2024
The complainant holds a home and contents insurance policy with the financial firm (insurer).
On about 3 January 2024, the complainant lodged a claim for storm damage to his home. The insurer has declined the claim because it says the complainant breached his duty not to make a misrepresentation when the policy was taken out. This is because he did not disclose his wife, TE, was operating a business from home.
TE says she was not operating a business from home, it was a hobby and seeks that the insurer approve and pay the claim.
Yes. The complainant did not tell the insurer that TE operated a business from home. If he had told the insurer this, it would not have provided the complainant with cover. On that basis, the insurer is entitled to decline the claim.
The insurer has paid the complainant $500 in compensation for the poor claims handling experience. This amount is fair in all the circumstances.
Considering all the exchanged information, it is fair in the circumstances for the insurer to deny the claim and cancel the policy. This is because the insurer would not have accepted the complainant’s risk if he had complied with his duty to take reasonable care not to make a misrepresentation about the business signage on and/or the customer visits to, the insured property.
The insurer has acknowledged the complainant’s claims experience and the shortcomings on its part. It has also compensated the complainant for the claims experience. The compensation paid is adequate and in line with AFCA’s approach to awarding non-financial loss compensation.
This determination is in favour of the insurer. The insurer is not required to take any further action.
Yes. The complainant did not tell the insurer that TE operated a business from home. If he had told the insurer this, it would not have provided the complainant with cover. On that basis, the insurer is entitled to decline the claim.
At the time this policy was taken out, the complainant had a duty to take reasonable care not to make a misrepresentation (the duty). Therefore, section 20B of the Insurance Contracts Act 1984 (the Act) applies.
To decline a claim on this basis, the insurer must be able to at least show:
As set out in Section 20B(2) of the Act, whether the complainant has taken reasonable care not to make a misrepresentation is to be determined with regard to all the relevant circumstances.
Section 20B(3) sets out some factors that may be considered. These are:
TE states the complainant purchased the policy partly online and partly over the phone. However, TE says she does not know the approximate date of the call and has no phone records to support her position. She says her phone records go back to only three months prior to the date of AFCA’s request. TE has not provided any other information to support the policy was incepted partially online and partially over the phone.
The insurer says the policy was solely incepted online and has provided screenshots of its system for the month of August 2023. This information indicates no calls were received from the telephone number provided by TE and another number the insurer has on record as belonging to the complainant.
TE also said in her transcript of interview as part of the investigation process, that she may not have spoken to the insurer over the phone and it could have related to another policy (with another insurer).
Based on the information available, I find that the policy was taken out online.
The insurer says prior to proceeding with the policy, the nature and effect of the duty not to make a misrepresentation was explained to the complainant. The exchanged information shows the duty was displayed to the complainant prior to answering all the underwriter’s risk assessment questions. The complainant could not have proceeded with the quote unless he clicked ‘I understand’ in relation to the information provided about his duty.
Given this, I accept the insurer informed the complainant of the general nature and effect of the duty prior to entering the contract and providing his responses to the underwriting questions. Accordingly, the complainant had been made aware of the importance of being truthful and accurate in his answers before those questions were asked and the risks of not doing so.
TE states her business, BBL was only a hobby at the time of policy inception, and not a business. She says at the time of purchasing the policy, she was only practicing on family, friends and neighbours at no charge, and only on a bartering basis. The complainant says it was just a couple of TE’s friends coming over getting their legs waxed a couple of nights a week and the business did not make any money.
TE says she did the following things, but after the policy was incepted:
TE states her business has no business registration, Australian Business Number (ABN), or business name. She states her business falls within the definition of a hobby according to the business.gov.au website and does not fall within the definition of a ‘Business Activity’ as set out in the Product Disclosure Statement (PDS).
The insurer has submitted screenshots of TE’s social media activity as part of this complaint.
The document provided by the insurer contains a series of reviews provided by different individuals in relation to TE’s business, which have been acknowledged by a social media account bearing the name of BBL. The screenshots indicate services have been provided since 2022 which is prior to the inception of the policy by the complainant. This is in contradiction to the submission made by TE during this AFCA complaint. TE has not disputed that this social media account belongs to her business.
The document containing TE’s social media activity for her business, also shows BBL’s Facebook page with a post from April 2023 offering customers Afterpay facilities.
The insurer also provided a call recording between TE and an agent of the insurer on 5 February 2024. TE is heard to say she has been running the brows and lashes business for about 18 months and that it is run out of the insured premises.
The complainant also admits (at points 52 and 53 of the transcript) to the presence of an A-frame business sign on the property, in his interview on 7 February 2024.
Further, TE said the following when lodging the AFCA complaint:
My husband took out the policy and advised his business activities and advise his clients come to the home sometimes but didn’t disclose my business which also has customers coming to the home. This was not malicious or misleading by our end but a mistake. He thought by stating his covers all bases as mine is mostly family and friends and a hobby.
The insurer says TE operated a business from home. The policy defines ‘Business activity’ at page 100 as follows:
Business activity means:
The insurer states that while payment traditionally involves currency or money, bartering or an exchange in services involves the transfer of something of value and is considered a form of payment.
Considering all of the available information, I consider that TE was conducting a business activity, because:
I am satisfied the above was in place at the time the complainant incepted the policy, on the balance of probabilities.
The insurer provided a screenshot of the questions asked during the online inception of the policy.
The screenshot provided demonstrates the complainant is first asked:
Do you own a business and run it from home?
This means any activity specifically undertaken for the purposes of earning an income or any activity registered as a business and which you are obliged by law to register for GST purposes.
Following the description the customer is also provided with the following information,
I work from home but not self-employed, what do I enter?
WORKING FROM HOME If you have an employer and now working from home doing the same work (full time or part time), you can select "No" for this question and proceed”.
As the complainant answered ‘Yes’ to the above question, the following question is displayed:
OK, is the business conducted from the home using it for any of the following?
The insurer says that if the complainant answered ‘Yes’ to the above, the system would have displayed a message asking the complainant to call the insurer in relation to the quote. The complainant would not have been able to complete incepting the policy online.
I accept this question is clear and unambiguous. There is no dispute the complainant answered ‘No’ to this question. The complainant’s response is recorded on page three of the policy schedule.
There is no information to show the complainant was unaware of TE’s business and the extent of its operation at the time of incepting the policy.
In light of the above, I am satisfied the complainant:
Section 28 of the Act describes the rights of the insurer where there has been a breach of the duty to take reasonable care not to make a misrepresentation. Section 28(3) says where a breach has been made, the insurer’s liability for a claim may be reduced to the extent the insurer was prejudiced. This returns the insurer to a position in which it would have been in but for the breach.
When considering if an insurer is entitled to reduce its liability under section 28 of the Act, it is necessary to consider what the insurer would have done if the relevant breach had not occurred. The insurer has the onus to show what it would have done and the extent of any prejudice it has suffered as a result.
The insurer says had the complainant disclosed the business signage at, and/or customer visits to, the insured property, it would not have provided him with the policy.
The insurer has also provided a statutory declaration from its underwriter confirming cover would not be extended in the circumstances. The underwriter has provided extracts of the underwriting guidelines in place at the time the policy was incepted on 27 August 2023. The guidelines show the insurer would not have accepted the risk if the business activity operated involves business signage installed and/or any people coming to the insured address.
Based on the evidence provided, I am satisfied that if the complainant had disclosed the business signage and/or customer visits, the insurer would not have offered him the insurance policy he incepted.
As the insurer has shown that it would not have offered cover, under section 28(3) of the Act it follows that it can reduce its liability for the claim to nil.
Therefore, I am satisfied the insurer is entitled to decline the claim.
Further, the insurer can rely on section 60 of the Act to cancel the complainant’s policy. The insurer has confirmed it has refunded the applicable premiums from policy inception. I agree this is fair and reasonable in the circumstances.
Under paragraph D.3 of the AFCA Rules, AFCA may award compensation for non-financial loss (capped at $5,400) where the insurer’s actions have caused an unusual amount of physical inconvenience, time taken to resolve the situation or interference with the complainant’s expectation of enjoyment or peace of mind.
TE raises a series of concerns in relation to the conduct of the insurer and its representatives, including the following:
TE also states that the payment of $500 from the insurer was only in resolution of one complaint raised by her, and that her other complaints have not been addressed.
The Insurer acknowledges that TE has experienced a degree of frustration as a result of its claims handling. It also acknowledges there should have been better communication with TE during the claims process. It says feedback has been provided to the relevant parties on how to action customer queries, understanding policy entitlements and responsibilities of the Claims Department during the investigation process.
I have reviewed the file in its entirety. I acknowledge the insurer’s admission that the claims handling experience could have been better. I also appreciate that the complainant and TE are disappointed by the claim outcome.
In my view, the insurer has adequately compensated the complainant (and TE) for the poor claims handling experience. The insurer has also responded the complainant’s concerns. On that basis, I do not consider any further compensation is warranted in the circumstances.
Considering all the exchanged information, it is fair in the circumstances for the insurer to deny the claim and cancel the policy. This is because the insurer would not have accepted the complainant’s risk if he had complied with his duty to take reasonable care not to make a misrepresentation about the business signage on and/or the customer visits to, the insured property.
The insurer has acknowledged the complainant’s claims experience and the shortcomings on its part. It has also compensated the complainant for the claims experience. The compensation paid is adequate and in line with AFCA’s approach to awarding non-financial loss compensation.
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 of the information the parties have provided.
While the parties have raised a number of 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.
