Insurance Part II: A matter of faith

By Tom Williams, Solicitor

In the November/December 2003 issue we looked at the special duty of both the insurer and the insured to disclose everything that could affect the type of policy issued, the amount of coverage (in dollar value) and the cost of the premium. This information is also used by the insurer to decide whether or not to accept the risk and there can be serious consequences for failing to disclose a relevant fact.

In this issue we look at specific aspects of insurance in more detail, and the steps that can be taken if a claim is refused or the amount of settlement offered is inadequate.

The Policy

Once the proposal has been accepted and the premium (the cost of the insurance) paid, the policy is issued. This is the formal document setting out:

The parties to the contract
The details of what is being insured
The risks to be covered
The amount of the excess
The exclusions, that is, the events that will not be covered by the policy.
The policy document should be checked to ensure that it does provide the cover required.

Cover Notes

These "interim contracts of insurance" are provided by insurance companies for a specified period before a formal proposal has been completed and accepted. The insurance company's liability is limited to what is specified in the cover note - which may differ from that stated in the final policy. The insurance company cannot, however, make its liability under the cover note conditional upon the insured entering into a contract to replace the cover note.

Remember that the duty to disclose all material facts also applies when a cover note is being arranged.

Renewals

As a general rule, insurance policies provide protection for a defined period, such as a year. There is no absolute right to an automatic renewal: the insurance company may, at its discretion and under certain circumstances, decide not to renew the policy. Under s58 of the Insurance Contracts Act, however, the insurer is required to give 14 days notice - before the expiration of the original contract - of the date when the contract will expire and "whether the insurer is prepared to negotiate to renew or extend the cover."

Renewal is also conditional upon payment of the premium and, because a new contract is being created, all the rules concerning disclosure apply. If there has been a change in circumstances during the year or a claim has been made, then the insurance company must be notified. Failure to do so can lead to the same sorts of problems that can occur when the contract is first entered into.

Making a Claim

Depending on the value of the "loss" you have suffered, it may not be worthwhile making a claim. Most policies contain an excess amount which is the amount you will pay before the insurance company makes any contribution.

For example, a broken window may cost $250 to replace and the excess on your policy is $500. In this case, there is nothing to be gained by making a claim.

Where the claim is only slightly higher than the excess, it is worth considering whether making a claim will result in the loss of a "no claim bonus" and the effect this will have on your premiums in the longer term.

Notify the insurance company of the loss as soon as possible after the event. Most policies contain a clause requiring notification of a claim within a certain time and in a particular manner. A phone call, followed by a letter providing full details of the incident, is appropriate if no other procedure is specified.
If the damage is caused by criminal action, such as a burglary or armed hold-up, make sure the police are called and obtain a copy of their report of the incident for your insurance company.
Keep accurate records of your property, such as receipts, valuations and serial numbers, and have copies of these available for the insurance company.

Passing of risk

If you are purchasing a business and plan to move into the premises and commence running the operation before the date for settlement, you should obtain insurance cover from the date you take possession.

Similarly, if you have purchased real estate and will be moving in prior to settlement - perhaps under a licence agreement - then you will need to arrange cover from that date.
You can no longer rely on the vendor's policy to provide cover for the property, or business, once you have taken possession.
When a claim is refused or the settlement is not enough
If the insurance company declines to settle a claim for a particular reason, or the settlement amount is inadequate, you may need to seek professional advice.
For general insurance, perhaps the simplest way to deal with the problem - if you have been unable to resolve the difficulty with the insurance company directly - is to lodge a complaint with the Insurance Enquiries and Complaints panel. This is a free service for consumers but it is limited to claims for less than $290,000.
The panel will carry out an investigation to determine why the claim has been refused or the basis for calculating the amount offered. The panel's decision is not binding, so if you are still unhappy with the outcome you may wish to seek legal advice and commence an action against the insurance company.

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