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What is Insurance?

Insurance is a form of risk management, which plays a vital role in every aspect of modern society. Although insurance is generally not mandatory, many Australians choose to insure themselves against risk by taking out a variety of insurance policies. There are a wide range of insurance policies to chose from, including comprehensive motor vehicle, home and contents, health and even pet insurance. Essentially, you’re paying a premium to an insurance provider to transfer the risk associated with a potential loss. In return, the insurance provider promises to indemnify you should one of the insured risks manifest.

But what happens when you make a claim, and the insurer refuses to pay?

An insurance policy is essentially a contract between the insurance provider (“the Insurer”) and the policyholder (“the Insured”). In Australia, most insurance policies are regulated by the Insurance Contracts Act 1984. In particular, that legislation mandates that relevant insurance contracts are contracts of “utmost good faith”. This has different consequences for the Insurer and the Insured.

In discharging its duty of utmost good faith, the Insurer must act with regard to the Insured’s interests even where they may be in conflict with those of the Insurer. For example, it is for the Insurer to assess any claim and determine whether to pay same out. Obviously, it would be in the best interests for the Insurer to refuse the claim, which is in conflict with the interests of the Insured. On the other hand, the Insured has an obligation to act honestly when dealing with the Insurer. This duty extends to ensuring that the Insured honestly discloses all information requested by the Insurer.

An Insurer must have reasonable grounds for rejecting an insurance claim. For example, the loss claimed might fall outside the scope of the insurance contract (i.e. the relevant policy might provide cover for flooding, but not water ingress caused by tidal currents). Similarly, an Insurer may refuse to indemnify an Insured if the Insured has failed to disclose a fact which, if known to the Insurer would have led it to refuse cover (i.e. failing to disclose a known medical condition when applying for insurance).

Insurers often reject claims based on one or more exclusions in the policy. Sometimes those exclusions are worded broadly and are subject to interpretation. In the event an Insurer refuses a claim without proper grounds, it may amount to a breach of the insurance contract.

If you believe your insurer has unreasonably rejected an insurance claim, we may be able to assist. Please contact our office on (07) 4963 2000 or via our online contact form.