The Australian Financial Complaints Authority (AFCA) recently determined a dispute between Auto & General Services Pty Ltd (Auto & General) and their insured, who made a claim for a motor vehicle incident. The AFCA determined whether an insurer could reject a claim on the basis of non-disclosure of a criminal conviction in circumstances where they had knowledge of the criminal conviction.
Auto & General rejected their insured’s claim due to the non-disclosure of a previous criminal conviction. The insured argued that there was no non-disclosure as the insured had previously had a phone conversation with the insurer regarding a separate claim, where they had disclosed the criminal conviction.
The AFCA found that there was no non-disclosure by the insured because they had disclosed the criminal conviction on a previous occasion. Auto & General was already aware of the insured’s criminal conviction due to a disclosure made in the course of a previous claim. Section 21(2)(c) of the Insurance Contracts Act 1984 (Cth) (the Act) provides that the duty of disclosure does not require disclosure of a matter that the insurer knows or ought to know. As such, it was found that Auto & General knew of the criminal conviction and could not reject the insured’s claim on the basis of non-disclosure.
However, the AFCA found that there had been misrepresentation by the insured when the insured had answered “no” when applying for a policy and was asked if there were any relevant criminal offences.
Section 28(3) of the Act entitles the insurer to reduce their liability to the position they would have been in had the misrepresentation not been made. The insurer argued that had the insured not made the misrepresentation, they would not have provided the policy.
The AFCA found in favour of Auto & General, holding that they were entitled to reject the claim for misrepresentation.
Implications of this decision
It is important to understand your obligations under an insurance policy and how non-disclosure and misrepresentation may affect your claim outcome. Even if your insurer was previously made aware of a matter you are required to disclosure, you should continue to be truthful and transparent about matters which may affect your policy.