The Law Handbook 2024

958 Section 10: Accidents, insurance and compensation would have accepted the risk for the same premium and on the same terms and conditions despite the relevant failure. An insurer may avoid the contract if a relevant failure is fraudulent. An insurer proposing to rely on section 28 has to prove it is entitled to reduce its liability. Making an insurance claim They say the proof of the pudding is in the eating. The proof of an insurance policy is in the making of a claim. A claim is a call on the insurer by a policyholder to provide indemnity or cover for a claim under the policy. To make a successful claim, the following conditions must be satisfied: • the policyholder must establish that the loss claimed is covered by the insurance policy – that is, that the loss arose from an insured event; • where the insurance policy contains exclusions, it is the insurer’s responsibility to demonstrate that cover for a claim is excluded; • the policyholder must show they have suffered loss as a result of an insured event or risk; • the policyholder must have an economic relationship with the subject of the insurance policy (but not necessarily a legal or equitable interest) at the time of entering the contract or at the time of loss – this means that policyholders can insure property they don’t own if they will sustain an economic loss if the property is damaged by an insured event (ss 16, 17 IC Act); • the policyholder should give notice of a claim in accordance with the terms of the policy, although failure to give such notice may not necessarily allow an insurer to refuse to pay a claim; • the loss must not have been intentionally brought about by the policyholder’s deliberate acts; • the claim must be made honestly – an insurer may refuse to pay a fraudulent claim, even where the claim would have been covered by the policy if the insurers were told the true circumstances of the claim; • the policyholder has an obligation to reduce their losses. The nature and extent of this responsibility varies from case to case, but it requires the policyholder to do what is reasonable in the circumstances of the claim. Generally, after an insured event has occurred, the insurer should cover expenses necessarily incurred by the policyholder in protecting the insured property from further loss or damage or in minimising any loss. Common problems with insurance claims Averaging (under insurance) Policyholders should insure property and risks at their full value. Property insurance premiums are assessed on the assumption that property is insured for full value. If property is under-insured (the loss claimed exceeds the sum insured under the policy), then effectively the policyholder is assuming the risk of the uninsured portion of the loss. A number of insurance policies deal with this uninsured portion by reducing or averaging the insurer’s liability under the policy, thereby reducing the cover available to the policyholder under the insurance contract. An averaging clause is only effective if the policyholder has been clearly informed in writing of its nature and effect before entering into the contract (s 44 IC Act). The IC Act also limits the effect of such a clause if the property insured is either the principal place of residence for the policyholder or their family, or the contents of such a residence. In such cases, the averaging clause will have no effect if the sum insured is more than 80 per cent of the value of the property. If the property is insured for less than 80 per cent of its value, then the sum insured shall be averaged in accordance with the following formula: A x S P where: A = the amount of loss; S = sum insured; and P = 80% of value of the property. EXAMPLE A and B have a new-for-old insurance policy for the contents of their home. The contents are valued at $60000 but they have only insured them for $40000 (less than 80 per cent of their value). A stereo worth $2000 is stolen.