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Determination
Case number | 12-00-1015817 |
Financial firm | The Hollard Insurance Company Pty Ltd |
Case number: 12-00-1015817 28 June 2024
The complainant operates a business performing electric vehicle conversions and held a business insurance policy with the financial firm (the insurer). The complainant lodged a claim after a vehicle caught fire inside their workshop in February 2023.
The insurer assessed the claim, cancelled the policy, and declined to cover the damage.
The insurer says the complainant did not disclose that it was importing raw materials, components or finished goods (in this case, batteries). The insurer says if the complainant had provided accurate information about its business, including the importation of batteries, it would not have offered insurance.
The complainant disagrees with the insurer’s decision and says that it only started importing batteries after the renewal in 2022. The complaint wants the insurer to pay the claim in full.
No. The insurer has not established that the complainant breached its duty of disclosure. The insurer is not entitled to cancel the policy or decline the claim on this basis.
The outcome is fair because the insurer has not shown that the complainant breached its duty of disclosure. The insurer also has not established an entitlement to cancel the policy under the Insurance Contracts Act 1984. It is fair for the insurer to reinstate the policy (subject to payment of any refunded premium) and settle the claim for fire damage in accordance with the terms of the policy.
The Determination is in favour of the complainant.
Within 14 days of the complainant accepting the determination, the insurer is to:
The insurer is then to settle the claim promptly in accordance with the terms of the policy.
No. The insurer has not demonstrated that the complainant breached its duty of disclosure. The insurer is not entitled to cancel the policy or decline the claim on this basis.
Background and issues in dispute
The complainant’s policy was first incepted on 23 July 2019 and was renewed annually.
A fire occurred at the complainant’s business premises on 29 August 2022 and the complainant lodged a claim with the insurer, which was accepted and paid.
A second fire occurred on 19 February 2023 when a stored vehicle caught fire damaging several vehicles and the premises. The complainant lodged another claim with the insurer seeking cover for this damage. The insurer appointed a fire investigator who reported that the fire originated in a recently installed battery energy storage system and the complainant had ordered these batteries from China in about August 2022.
The insurer wrote to the complainant on 9 June 2023 advising that the complainant had answered a disclosure question incorrectly and it was cancelling the policy.
The insurer sent a further letter on 24 July 2023 declining the claim on the basis that it would not have issued the policy if the complainant had disclosed that it was importing batteries.
There is no dispute the fire is a claimable loss under the policy. The issue for determination is whether the insurer was entitled to decline the claim and cancel the policy. The insurer bears the onus of proving that the complainant breached its duty of disclosure.
Complainant’s duty of disclosure
The policy was obtained for business purposes and does not satisfy the definition of ‘consumer insurance contract’ under Insurance Contracts Act 1984 (the Act). The complainant’s disclosure obligations are therefore governed by section 21 of the Act.
Section 21 provides that before a contract of insurance is entered into, an insured must disclose every matter:
The complainant’s duty of disclosure is also set out on page 3 of the Certificate of Insurance (COI) and page 6 of the product disclosure statement (PDS).
To refuse to pay a claim on this basis, the insurer must be able to show that the complainant breached its duty, and that the insurer has been prejudiced by this (section 28 of the Act).
Complainant answered questions regarding the business
The policy was renewed for the period 23 July 2022 to 23 July 2023. This renewal occurred late and was arranged by a sales agent for the insurer on 10 August 2022.
There is no dispute the policy documents were provided to the complainant, including the COI, PDS and a document titled ‘Your Declarations’.
The ‘Your Declarations’ document contains a series of questions regarding the complainant’s business and answers provided on 10 August 2022. The insurer relevantly asked:
Does the business directly import raw materials, components or finished goods? No
The ‘Your Declarations’ document also states:
It is important that you check the information you have given us and notify us of
any changes or corrections. This is an important part of your duty of disclosure.
The complainant’s director does not dispute originally answering “No” to the above question. The insurer has provided a policy inception call recording dated 23 July 2019 during which the question was asked and answered “No”. I am satisfied that the complainant’s director endorsed that answer at the time of policy renewal on 10 August 2022 as he did not notify the insurer of any amendments.
The insurer says the complainant breached its duty of disclosure by answering the above question incorrectly. The insurer relies on reports by its loss adjustor and forensic fire investigator (FS) to support its position.
The FS report dated 8 December 2022 in relation to the first fire states that, in the lead up to starting the business in 2017, the complainant’s director:
purchased several batteries from the United States of America. Each battery comprised several separate cells and some of the battery sets he purchased had been sourced from 2014 Nissan Leaf vehicles. There was no warranty on the battery packs at the time of purchase or import. [He] then stored the batteries in his workshop.
The report goes on to say the complainant performed an electric vehicle conversion on a Chrysler in 2017. That vehicle was brought back for an upgrade in September 2021 and one of the batteries purchased in 2017 was installed. The fire in August 2022 originated within a lithium ion battery in the battery stack in the boot. The batteries had been in the vehicle for 11 months and had originally been purchased second hand in 2017.
The FS report dated 30 March 2023 concerning the second fire states that the complainant had been converting a Camry into an electric vehicle. Work started in November 2022 and was nearing completion when the vehicle caught fire in February 2023. The fire originated in a recently installed battery energy storage system. The batteries used in the vehicle had been sourced from China and were ordered by the complainant around August 2022.
The insurer says the findings in these reports support its position that the complainant has been engaging in the importation of materials since or before commencing trade in 2017.
The complainant does not dispute that it was using imported batteries at the time of the fire on 19 February 2023. However, the complainant denies any breach of duty and says that it answered the disclosure question correctly.
The complainant says:
The complainant has provided the following documents in support of its position:
The complainant also submits that the insurer settled a previous fire claim within the policy period. If the use of imported batteries was an issue, the insurer should have highlighted this and the complainant could have renegotiated the policy or found another suitable policy.
Based on the available information, I am not satisfied the insurer has established that the complainant answered the disclosure question incorrectly when completing its 2022 renewal.
A key consideration is the wording used in the insurer’s question - specifically if the business ‘directly’ imports materials. Given the global nature of the automotive industry, it is likely many Australian mechanics and repairers use imported parts despite not importing the parts themselves.
I am not persuaded that a reasonable person in the complainant’s position would consider this relevant to the insurer’s decision to take on the risk given the question concerned direct importations. I am satisfied that an applicant for insurance is only required to answer ‘Yes’ if the business is directly importing the parts from overseas, rather than ordering them through an Australian intermediary.
I accept that the complainant placed an order for the direct importation of batteries from China on 16 August 2022, but that order was placed after the 2022 policy renewal (arranged on 10 August 2022 and effective from 23 July 2022). To establish a breach of duty, the insurer must prove that the complainant was directly importing batteries prior to this renewal.
The insurer relies on the reports by FS. I am not satisfied that these documents establish the complainant directly imported batteries prior to the 2022 renewal. While FS reported that the complainant sourced batteries from overseas in 2017, there is no evidence to support the investigator’s comments or to show the batteries were directly imported. Rather, the investigator appears to be relying on statements allegedly made by the complainant’s director, which he disputes.
The FS report dated 8 December 2022 states the complainant “purchased several batteries from the United States of America” in the lead up to starting the business. This does not establish the complainant directly imported these batteries, rather that they came from overseas (which leaves open the possibility they were purchased through an Australian company). Further, the FS report goes on to says “some of the battery sets he purchased had been sourced from 2014 Nissan Leaf vehicles” but it does not identify when and how these batteries were purchased.
I also consider it relevant that the insurer received the first FS report in December 2022 and did not decline the first claim or cancel the policy. If the insurer had concerns about the complainant importing batteries, it should have brought this to the complainant’s attention. The fact that the insurer paid the first claim and remained on risk following receipt of the first FS report suggests this report does not establish a breach of the complainant’s duty.
The complainant has provided documents establishing that it previously ordered batteries through Australian companies, including an invoice showing that it purchased second-hand Nissan Leaf batteries from ZS in 2020. I acknowledge the complainant has not provided proof of purchase for the 2017 batteries. However, this was over six years ago, and the onus is the insurer to establish a breach of the duty rather than on the complainant.
Overall, there is insufficient evidence to establish on the balance of probabilities that the complainant was directly importing batteries prior to the 2022 policy renewal. I am therefore not satisfied the insurer has established the complainant provided incorrect information at renewal. It follows that there has been no breach of section 21 of the Act.
The insurer purported to cancel the policy pursuant to section 60(1)(b) of the Act.
I have already found the complainant did not breach its duty of disclosure. Therefore, there has not been a ‘relevant failure’ (as defined in section 27AA of the Act). In the absence of a relevant failure the insurer cannot rely on section 60 to cancel the complainant’s policy. Therefore, under section 63 of the Act the insurer’s cancellation of the policy is of no effect.
Further, the cancellation procedure adopted by the insurer contains errors and I am not persuaded the insurer’s decision to cancel the policy was fair and reasonable. In particular, the insurer cancelled the policy effective from 26 June 2023, meaning there was still a policy in place at the time of the fire. The insurer also incorrectly cited section 20B of the Act rather than section 21 of the Act as the basis for the cancellation and decline.
I consider it fair for the insurer to reinstate the policy. The complainant must pay the premium for the relevant policy period including any premium which may have already been refunded.
The insurer did not send a renewal notice in July 2023 due to the purported cancellation of the policy and has not made any submissions on this issue. The complainant says it has not obtained alternative insurance cover. Section 58(3) of the Act therefore applies and a statutory contract of insurance remains in force on the same terms as the original policy.
The insurer is required to remove from its records any reference to the cancellation of the policy and the decline of the claim based on a breach of duty or misrepresentation. If requested by the complainant, the insurer is to provide them with a letter confirming the cancellation was an error, so they can provide the letter to future insurers if necessary.
I have already found that the insurer has not established a breach of the complainant’s duty of disclosure and was not entitled to cancel the policy. The insurer therefore is not entitled to decline the claim, and it is unnecessary to consider whether it has established prejudice under section 28 of the Act.
The insurer is required to accept the claim arising from the fire on 19 February 2023 and settle it promptly in accordance with the terms of the policy.
The outcome is fair because the insurer has not shown that the complainant breached its duty of disclosure. The insurer also has not established an entitlement to cancel the policy under the Act. It is fair for the insurer to reinstate the policy (subject to payment of any refunded premium) and settle the claim for fire damage in accordance with the terms of the policy.
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.
Insurance Contracts Act 1984 (Cth)
Section | Terms |
21 – The insured’s duty to take reasonable care not to make a misrepresentation |
… |
27AA – Meaning of relevant failure |
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28 – General insurance | …
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60 – Cancellation of contracts of general insurance |
the insurer may cancel the contract. |
63 – Cancellation of contracts of insurance void | (1) Except as provided by this Act, an insurer must not cancel a contract of general insurance. … (3) Any purported cancellation of a contract of insurance in contravention of subsection (1) or (2) is of no effect.
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