In this practice area
Disputes where an insurer seeks to avoid a policy or reduce a claim because of what the insured did or did not tell it before the contract was entered into or renewed.
When these disputes arise
An insurer that receives a large claim often returns to the proposal form. If it finds a prior claim, a loss history, a regulatory issue or an inaccurate answer that was not disclosed, it may seek to avoid the policy from inception, or reduce what it pays.
These disputes affect every class of insurance, from property and liability to directors and officers and financial institutions covers. They frequently turn on what the insured actually knew, what the broker passed on, and what the insurer asked.
The legal framework
For contracts other than consumer insurance contracts, section 21 of the Insurance Contracts Act 1984 (Cth) imposes a duty to disclose every matter the insured knows, or that a reasonable person in the circumstances could be expected to know, is relevant to the insurer's decision to accept the risk and on what terms. The duty is limited: it does not extend to matters that diminish the risk, are of common knowledge, are known or should be known to the insurer, or where the insurer waived compliance. An insurer that does not pursue an obviously incomplete or unanswered question is taken to have waived the duty for that matter. Under section 22 the insurer must clearly inform the insured of the nature and effect of the duty.
Following reforms that took effect on 5 October 2021, consumer insurance contracts are governed instead by section 20B, which imposes a duty to take reasonable care not to make a misrepresentation. Remedies for both regimes are in section 28. If the failure was fraudulent, the insurer may avoid the contract. Otherwise, it may only reduce its liability to the amount that would place it in the position it would have been in had the failure not occurred. Under section 31, a court may disregard an avoidance for fraud where it would be harsh and unfair, and section 33 makes these remedies exclusive.
How these matters run
The insurer bears the onus of establishing the non-disclosure or misrepresentation and the consequences it claims. The key evidence is the proposal and renewal documents, the questions actually asked, the insured's knowledge at the time, the broker's file, and the insurer's own underwriting guidelines and practice.
The question of what the insurer would have done is often contested. An insurer that claims it would have declined the risk should be put to proof, usually through its underwriting documents.
How GopherWood Lawyers acts
We test each element of the insurer's position: whether the matter was known, whether it was relevant, whether the duty was waived or the insurer was properly informed, and whether the claimed remedy is one section 28 permits. We obtain the underwriting file and challenge assertions about what the insurer would have done.
Where the broker contributed to the problem, we also assess whether the insured has a claim against the broker, and protect that position while the coverage dispute runs.