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Determination
Case number | 997206 |
Financial firm | AAI Limited |
Case number: 997206 7 June 2024
The complainant renewed her motor vehicle insurance policy with the financial firm (insurer) for the 21 December 2021 – 21 December 2022 period. The policy covered a 2018 Audi A4 2.0 belonging to her son, who has a driving and criminal history. The son was not a policyholder or a listed driver under the policy.
The complainant claimed on the policy after the vehicle was found damaged whilst parked.
The insurer declined the claim on the basis the complainant failed to comply with her duty to take reasonable care not to make a misrepresentation. It says:
Given this, the insurer says there has been a ‘relevant failure’ within the meaning of section 27AA of the Insurance Contracts Act, 1984 (the Act) that entitles it to reduce its liability for the claim to nil under sections 13 and 28(3) of the Act.
The complainant says:
No. The insurer has not established there has been a ‘relevant failure’ under section 27AA of the Act that entitles it deny liability for the claim under section 28(3). Nor has it established that the complainant breached section 13 of the Act.
The insurer has not established it can decline the claim. Given this, it is fair that the insurer takes steps to meet its liability under the policy for the insured vehicle’s damage.
This determination is in favour of the complainant.
The insurer is to take steps to meet its liability under the policy for the insured vehicle’s damage within 14 days of being notified of the complainant’s acceptance of this determination.
If the insurer elects to cash settle the claim, it is to pay interest on the assessed cash settlement amount under section 57 of Act from 9 June 2023 until payment is made.
No. The insurer has not established there has been a ‘relevant failure’ under section 27AA of the Act that entitles it deny liability for the claim under section 28(3). Nor has it established that the complainant breached section 13 of the Act.
Policy is a ‘consumer insurance contract’ under the Act
The complainant renewed her motor vehicle insurance policy with the insurer on 21 December 2021. There is no dispute the policy was obtained wholly, or predominantly, for her personal purposes. Therefore, it is a ‘consumer insurance contract’ as defined by the Act.
Complainant has a duty to take reasonable care not to misrepresent
Section 20B of the Act imposes a duty on the complainant to take reasonable care not to make a misrepresentation (the duty) when renewing a ‘consumer insurance contract’.
Whether the complainant failed to take reasonable care is to be determined with regard to all relevant circumstances. Some factors to consider include:
To refuse to pay a claim on the basis the complainant breached the duty, the insurer must be able to at least show:
The insurer says its investigations show that:
The insurer says the complainant breached the duty because she did not accurately identify the insured vehicle’s regular drivers and give an accurate representation of their driving and criminal history. It says it would not have renewed the policy had it known that the son was a regular driver of the insured vehicle, given his driving and criminal history.
The insurer also says:
The complainant says she has been a long-time customer of the insurer and all her renewals were done by emails. She says:
The complainant also says the insurer’s decision is unfair as it is based on a person who is not a party to the policy or driving the vehicle when the damage occurred.
The complainant’s recorded interview appears to also indicate she did not realise there was an issue taking out the policy in her name although her son bought the vehicle. She was recorded as saying this:
But, we – and, I thought that’s not a problem, look me – me and my ex-partner thought that’s not a problem, they’re our children, it’s us, it’s okay, we left it at that.
On review of the exchanged information, I accept that:
However, I am not satisfied it is fair to conclude that the complainant breached the duty in this instance. This is because the insurer never:
I acknowledge the insurer’s ‘Target Market Determination’ and underwriting information support that its motor vehicle policies are ordinarily meant for owners of passenger cars, or persons who have financial interest in such vehicles. However, the insurer has not shown (and I am unable to find anything that shows) it makes it a point to:
The complainant’s renewal notice only mentions the insurer’s ‘Target Market Determination’ as a passing footnote. There is no indication this document was sent with the renewal notice. Nor was there any messaging given in the renewal notice that it was an important document to be read, like the messaging given about the product disclosure statement (PDS).
The Act does not strictly require a person to have an insurable interest over an asset to insure it. Nor does it prevent such a person from claiming under a policy. Given this, the insurer has not shown the complainant breached any law or duty in the way she took out the policy.
The renewal notice also says the complainant must tell the insurer about ‘everyone who will repeatedly use the car’ but does not otherwise explain what amounts to repeated use.
The insurer says its underwriting guidelines define ‘repeatedly’ as ‘anyone you know or expect will use the car regularly, or only from time to time during the period of insurance’.
However, the insurer has not shown this explanation was ever given to the complainant. The underwriting definition also seems somewhat confusing by seeking to equate ‘only from time to time’ driving with repeated driving.
In any case, the policy documents do not explain what amounts to repeated use of a vehicle. Given this, I cannot be satisfied the insurer’s requirement that – ‘you must tell us about everyone who will repeatedly use the car’ – is clear and unambiguous. It is not clear at what stage a person’s use of a vehicle would change from being occasional or moderate use to regular or repeated use, to make that person a disclosable driver.
Even if I accept the complainant should have understood the above requirement to mean she had to identify her son as a listed driver, the insurer has not shown she was aware of his driving and criminal history. A person can only disclose what they know. The complainant denies knowing her son’s driving and criminal history, and her son confirms this.
I am mindful the duty is a legal duty on the complainant to take reasonable care not to make a misrepresentation. Given this, the duty could arguably be said to require the complainant to check on her son’s driving and criminal history before making representations about them, if she names him as a listed driver on the policy.
However, a person can only know they have such a duty, what is expected of them, and the circumstances they may breach it, if they were first aware of the duty beforehand.
The duty only came into effect a few months before the complainant’s policy was renewed on 21 December 2021. It was also a significant change to the law surrounding non-disclosure and misrepresentation arising in insurance contracts. Further, the complainant does not have the benefit of an agent or broker in the matter.
Given this, I cannot expect the complainant to know about or understand the duty (including its nature and the consequences of non-compliance) unless the insurer informed her about these matters before the policy renewed. There is no evidence the insurer did this.
The insurer has referred to numerous policy provisions in the PDS to say it had informed the complainant about the duty. These provisions have been set out in section 3.3 of this determination for reference purposes only as none of them relate to the duty at all. They are about a policyholder’s obligations during the currency of cover, and not their obligations when taking out or renewing cover.
There is ultimately nothing in the renewal notice, the PDS or the supplied supplementary PDS that mentions the duty or explains its nature or its consequences if it is not complied with.
For the above reasons, I am not satisfied the insurer has shown the complainant breached her duty to take reasonable care not to make a misrepresentation. It would not be fair to conclude she did when the insurer has not set out its expectations clearly or informed the complainant of the duty and the importance of complying with it.
There is therefore no ‘relevant failure’ within the meaning of section 27AA of the Act, that entitles the insurer to decline the claim under section 28(3) of the Act. It also follows that any purported cancellation of the policy arising from this is of no effect.
I note the insurer also says the complainant breached section 13 of the Act but does not clearly explain its basis for saying this in its AFCA submissions. To the extent the insurer suggests she breached it because she took out the policy in her own name or because she did not identify her son as a listed driver and inform of his driving and criminal history, the insurer fails on this for substantially the same reasons it failed on its section 28(3) argument.
Finally, section 17 of the Act says the insurer cannot decline the claim just because the complainant does not have a financial interest in the insured vehicle.
As the insurer has not established any valid grounds to deny the claim, it follows it must meet its liability under the policy for the insured vehicle’s damage.
The insurer has not established it can decline the claim. Given this, it is fair that the insurer takes steps to meet its liability under the policy for the insured vehicle’s damage.
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. I have reviewed and considered all information the parties have provided.
While the parties have raised several issues in their submissions, I 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 |
13 – The duty of utmost good faith | (1) A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. |
16 – Insurable interest not required | (2) A contract of general insurance is not void by reason only that the insured did not have, at the time when the contract was entered into, an interest in the subject-matter of the contract. |
17 – Legal or equitable interest not required at time of loss | (1) Where the insured under a contract of general insurance has suffered a pecuniary or economic loss by reason that property the subject-matter of the contract has been damaged or destroyed, the insurer is not relieved of liability under the contract by reason only that, at the time of the loss, the insured did not have an interest at law or in equity in the property. |
20B – The insured’s duty to take reasonable care not to make a misrepresentation |
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27AA – Meaning of relevant failure |
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28 – General insurance | … (3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the relevant failure had not occurred. |
Your responsibilities
• take steps to prevent loss or damage, for example:
– move your car away from rising waters including tides;
– do not drive into water;
– do not leave car keys in the car while your car is unattended or not secure;
– accompany anyone test driving your car when it’s up for sale;
• keep your car well maintained and in a good, safe and roadworthy condition (e.g. replace worn out tyres, replace worn brakes and defective lights, fix paint including clear coats, repair major rust, repair worn upholstery and major scratches or dents, fix mechanical and electrical problems);
• follow all the terms, conditions and responsibilities set out in your policy;
• provide honest and complete information for any claim, statement or document supplied to us; and
• do not behave in a way that is abusive, dangerous, hostile, improper or threatening when engaging with us and our service providers.
Not meeting your responsibilities
Your policy may not provide cover if you have not met your responsibilities and it may lead us to reduce or refuse to pay your claim and/or cancel your policy.
When you need to contact us
During the period of insurance you must tell us as soon as possible if:
• you or any person who drives your car has their driver licence cancelled, suspended, disqualified or restricted;
• you or any person who drives your car has been charged with or convicted of, a criminal act or offence;
• you have had another insurer cancel or decline an insurance policy, impose specific conditions on a policy or refuse a claim;
• any details on your certificate of insurance are no longer accurate and complete, including but not limited to your car (see ‘When you replace your car’ page 14) or the address where you keep your car changes;
• the listed drivers of your car change;
• there are any changes to the physical condition of your car;
• you plan to, or have, added accessories or modifications to your car (see page 18);
• the way you use your car changes (see ‘Private use’ on page 71).
If you have not told us about any of the above matters having occurred in any other period of insurance when you held this policy with us, you must tell us as soon as possible.
What we will do when you contact us
When you tell us about any of the above matters an additional excess, additional premium or special condition may be applied to your policy. In some cases, it may lead us to reduce or refuse to pay a claim or it may mean we can no longer insure you and we will cancel your policy.
If you do not contact us
If you do not contact us when you need to, you may not be covered under your policy and it may lead us to reduce or refuse to pay a claim and/or cancel your policy.
