Australia: Indemnity assessment checklist - will your insurance claim pass the threshold?

In brief - Insurers follow an established procedure in assessing claims

While every claim made will require its own specific considerations, some basic steps will be on every insurer's checklist in assessing the legitimacy of claims received. The list below provides an insight into the procedure followed by insurers in assessing the validity of the claims and provides guidance when making an assessment of the likelihood of any pending claim getting the seal of approval.

Step 1: Who is the claimant?

On receipt of any insurance claim, the first step on an insurer's checklist will be to identify the claimant clearly in order to determine whether or not the person or entity claiming on the insurance policy is actually an insured party.

Historically, it was possible to prevent third parties who were not a party to an insurance contract from benefiting under the cover provided. (See Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70.)

However, the introduction of section 48 of the Insurance Contracts Act 1984 (as amended) (the Act) changed this position. (All references to the Insurance Contracts Act 1984 will be made in accordance with the changes contained in the Insurance Contracts Amendment Bill 2013 which was passed by the Australian Senate on 20 June 2013.) The section was designed so as to negate such third party disentitlement.

Pursuant to that section, a third party beneficiary under a contract of general insurance has a right to recover from an insurer (in accordance with the contract in place) the amount of any loss suffered by that third party beneficiary, even where he or she is not a party to the contract.

The section also extends obligations owed by an insured under the contract to the third party beneficiary. (See section 48(2), Insurance Contracts Act 1984, as amended.) Furthermore, the same defences to an action under the section are available to the insurer that would be available in any action by the insured.

The amendment bill has introduced the addition of defences including (but not limited to) the conduct of the insured, regardless of whether such conduct occurred before or after the contract was entered into. (See Section 48(3), Insurance Contracts Act 1984, as amended.)

Step 2: Is the insurance policy current?

Reference to the relevant schedule or certificate of insurance will provide guidance as to the period of insurance applicable to your claim. First it will be necessary to determine whether you are dealing with a "claims made and notified" or "event based" policy. The occurrence which gives rise to the indemnity will be a key indicator in establishing which type you are dealing with.

Under a claims made and notified policy, an insured must notify his or her insurer during the period of insurance of circumstances which may give rise to a claim. Subject to section 40 of the Act, provided sufficient notice is given by the insured, the question will then be whether the policy was in fact current at the time the insurer was notified of the circumstances giving rise to the claim.

Where the answer is yes and where appropriate notice is given, coverage will apply. Professional indemnity policies provide a good example of a claims made policy.

Event based policies provide coverage for a particular event or occurrence which takes place during the period of insurance. The occurrence of a loss or damage (or an incident which triggers a loss or damage) are examples of events that might trigger the policy.

An example of an event based policy would be a property damage policy. For claims made under an event based policy, the question to ask is whether the policy was current at the time the event occurred.

Step 3: Is this an insured event?

In determining whether an "insured event" has occurred, close scrutiny of the insurance contract, or policy terms and conditions, will be required. The onus of demonstrating that the claim does fall within the coverage provided lies with the insured, while the responsibility of determining whether any claim constitutes an insured event rests with the insurer.

Although it may feel like a tedious task, the only thing to do is to scrutinise the policy terms and conditions closely and apply them to the facts at hand.

Step 4: Do any policy exclusions apply?

While exclusion clauses can be an extremely useful tool to the insurer, such clauses are limited by section 54 of the Act and are strictly construed by the courts.

The language used in their drafting must be clear, plain and unambiguous. Where a clause can be said to meet each of these requirements, it will be for the insurer to demonstrate that the exclusion clause applies and has in fact been triggered.

Again, a close check of the policy terms and conditions should provide guidance as to whether an exclusion clause has been triggered.

Step 5: Other considerations which may disallow the claim

Where an exclusion clause fails to trigger or where none exists, an insured may still be disentitled from claiming under his or her policy.

Some questions considered by insurers are set down by legislation and it is useful to bear these in mind when assessing the efficacy of any insurance claim. These include:

  • Has there been a breach of the duty of good faith? Section 13 of the Act implies into every insurance contract the "duty of good faith". Each party must act towards the other party with the utmost good faith. Pursuant to the additions made to the section by the 2013 amendment bill, a breach of duty of good faith will now constitute a breach of the requirements of the Act.
  • Have you made full and proper disclosure? Pursuant to section 21 of the Act, an insured has a duty to disclose to the insurer (before entering into the contract) every matter that is known to the insured, which a reasonable person could be expected to know to be a matter relevant to the insurer in deciding whether to accept the risk. The amendment bill has introduced factors to be considered in assessing such disclosure, namely the nature and extent of the insurance cover and the class of person ordinarily expected to apply for such insurance. (The amendment will only apply to contracts entered into after the commencement of the new legislation. Further change to the section will commence 30 months after the date of Royal Assent, when section 21A will allow the insurer to ask the insured to answer specific questions relevant to its decision. Section 21B extends disclosure requirements to insurance contract renewals.)
  • Is the claim genuine? According to section 56, where a claim is made under a contract of insurance by a person who is not the insured under that contract and that claim is made fraudulently, the insurer (although unable to avoid the contract) may refuse payment of the claim.

Non-legislative considerations include:

  • Do you hold "other insurance"? Whether or not an insured holds other insurance (i.e. an entitlement to indemnity from two or more insurance providers in respect of the same subject matter) will be investigated by an insurer. Often, an insurance contract will include a clause aimed at limiting an insurer's responsibility where such dual policy coverage arises. However, the provisions of section 45 of the Act are relevant - pursuant to subsection (1), such clauses may be void. (Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first-mentioned contract.) Where legitimate dual coverage arises, section 76 of the Act allows an insured to claim against whichever insurer he or she elects and to recover from that insurer the amount of his or her loss (subject to the maximum sum insured).
  • Has the insured event contributed to the loss? Where the insured event could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, an insurer may refuse to pay all or part of the claim.
  • Has the insured event been tainted by illegality? Many insurance contracts will contain a clause that provides that an insurer may refuse to pay a claim where an insured event is tainted by illegality.
  • Does a right of subrogation exist? An insurer will usually investigate whether a recovery action exists whereby the insurer can step into the shoes of an insured and proceed with a claim against the party responsible for the loss. In this instance, the claim will usually be paid on the proviso that the insured will assist the insurer in recovering from the third party.

The efficacy of the claim (or lack thereof) has been determined - what next?

Where a claim has been granted indemnity/cover, it will be necessary to measure the loss. Depending on the type of claim at hand, various different factors will need to be determined by the insurer in conducting calculations. Notwithstanding this, the following points will usually be considered in most cases:

  • Does an excess or deductible apply?
  • Are dual policies in place?
  • Has the insured sum been correctly calculated or over or under insured?
  • What is the limit of liability under the policy? Will the claim fit within it or has the limit been eroded by other claims?
  • Are there any applicable sub-limits?
  • Does a policy reinstatement apply?

Where indemnity cannot be resolved, seeking legal advice at an early stage can help to keep costs to a minimum, by obtaining a clear view on the complexity of the matter and an accurate assessment on the likelihood of succeeding with an insurance claim. An insurance lawyer will be able to assist in ascertaining whether a strong claim on the part of the insured (or conversely, a reliable insurer defence) exists and can assist with communication between the parties, or where appropriate, settlement negotiations.

Further information regarding the questions considered by insurers in assessing the claims they receive can be found in the Insurance Council of Australia General Code of Practice, which sets out the way in which consumers can expect their insurer to behave and the recourse that policyholders have in disputes. The Code includes timeframes for the notification of decisions made on claims received (10 days where no investigation is required) and standards applicable where claims investigations apply.

Aoife Gallagher-Watson Key Contact: Cathryn Prowse
adg@cbp.com.au cpp@cbp.com.au
Insurance and reinsurance
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions