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General Insurance Case Studies

General Insurance Case Studies Index


1    Maximum demerit points Added December 2009
2    Travel insurance and exclusion for “insurrection
3    Accident Insurance

4    Legal Costs, Cover & Utmost Good Faith


Maximum demerit points – you cannot disclose what you do not know 

The financial services provider refused to pay the claim of Mr B for damage to a motor car following an accident, on the basis that he, as policyholder, had not made disclosure that he had reached the maximum 12 penalty points. Mr B claimed he was unaware he had reached the maximum number of allowable demerit points . Mr B said he did not receive the warning letter and the law of non-disclosure is clear that you cannot be obliged to disclose what you do not know.

At relevant times, Mr B held both a Queensland and New South Wales licence.

During the course of the dispute, financial services provider wrote to Mr B offering to “welcome him back” as a policyholder. The issue arose as to whether this was a marketing tool or a direct invitation to Mr B. Whilst this was not central to the decision making, it demonstrated the risk a financial services provider runs when on the one hand it says it would not insure an individual because of their particular driving history, and on the other hand sends them marketing material, with an invitation to re-insure.

In this determination, the Financial Ombudsman Service panel found accepted that a person cannot disclose what they do not know. After considering all the material provided by the parties, the Panel was not satisfied that the financial services provider had discharged the burden of proof that Mr B failed in his disclosure obligations to disclose he had received the maximum allowable demerit points at policy renewal.

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Travel insurance and exclusion for “insurrection”

Mr B was stranded in Thailand in September of last year when the Phuket airport was closed due to an anti-government protest. As a result, Mr B had to purchase new flight tickets, and incurred additional costs. The member denied his claim on the basis that the proximate cause for the loss arose from an excluded clause in the policy that is “a loss that arises from any act of war, or from a rebellion, revolution, insurrection or taking power by the military”.

The policy however provided cover if Mr B could establish the incurred additional travelling expenses as a result of cancellation of public transport services caused by riot, strike or civil commotion.

The critical issue for determination was to whether the events giving rise to the claim should be categorised as a riot or civil commotion, or whether they should be categorised as an insurrection.

In order to support its case that the events giving rise to the claim should be categorised as an insurrection, the member provided the Financial Ombudsman Service with press reports from the New York Times, the Washington Post and other international newspapers, using terms like ‘protest’ and the ‘demonstrators’.

In determining this dispute, the Financial Ombudsman Service considered it was important to examine the exclusion as a whole and to apply what is called the “ejusdem generis rule of interpretation” which requires the court or decision maker to interpret words in their context. In this regard, it was noted that other words used in the policy exclusion included “war, rebellion, revolution, or taking of power by the military”.

The Financial Ombudsman Service felt the term “insurrection” needed to be construed in that context i.e. a significant element of violence needs to be established. It was concluded from the press report that there was little evidence of violent revolution, at least as of 1 September which was the critical date in terms of the determination. It was decided that the events might more comfortably be described as a “riot” or “civil commotion” rather than an “insurrection”.

The Financial Ombudsman Service upheld Mr B’s claim.

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Accident Insurance

The dispute arose from a claim made on behalf of the applicant, a 17 year old school boy, who allegedly suffered a severe asthmatic attack as a result of exposure to chemicals during the school’s musical production following the operation of a ‘fog machine’ and exposure to other allergens. As the applicant had previously been diagnosed as an asthmatic, the issue arose as to whether he sustained an injury as covered by the policy.

In applying relevant case law, the Panel found that the injury was indeed suffered by violent external and visible means. The Panel decided that the inhalation of fumes from the fog machine and other fumes, satisfies that definition of injury in the same way as exposure to dust and other pollutants. In this regard, the Panel applied a High Court decision where the Court held that the addition of these words to the definition of injury means "no more than to draw attention to the distinction between the injury suffered and the means by which it was caused”.

The next critical element considered by the Panel was whether the injury had been suffered independently of any other cause. This was a difficult issue for the Panel because the applicant had previously suffered from asthma, although the condition was under control with the use of medication. In other words, the evidence was that the applicant functioned without difficulty in terms of leading an active life, prior to the incident giving rise to the claim, albeit with the use of medication when required.

Whilst the Panel was satisfied that the applicant had an increased propensity to suffer an asthmatic attack than other persons, this of itself was not a separate cause of the injury. The Panel stated that if the applicant had been actively suffering from asthma at the time of the exposure to the allergens, a different result may have ensued. However, the Panel was satisfied that in the particular circumstances of this case, there was only one cause of the injury which had been described above. The Panel therefore determined the dispute in favour of the applicant.

The Panel has also had to deal with disputes requiring determination as to whether the policyholder’s claim was excluded by virtue of a pre-existing medical condition. In several cases recently determined by the Panel, the member alleged that as the individual had an increased propensity to suffer from an illness, they suffered from a pre-existing medical condition. In one case, the person had undergone surgery for a small bowel obstruction in 2003 and required similar treatment in 2008 causing cancellation of a journey. As the member’s medical advisor said the applicant was at a much higher risk of the condition reoccurring than other members of the community, she in effect suffered from a pre-existing medical condition.

However, the Panel rejected this argument on the basis that simply because a person was at greater risk of developing a condition (e.g. a bowel obstruction) than other members of the community, the increased risk factor could not be translated into diagnosis that the person was actively suffering from a pre-existing medical condition, in the same way that the student was entitled to compensation following the severe asthmatic attack notwithstanding his vulnerability in this regard.

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Legal Costs, Cover and Utmost Good Faith

In Determination 33326 the applicant held a home contents policy subject to a $100 excess. A burglary claim was lodged in November 2006 for number of contents items amounting to approximately $30,000. During the claims process the insurer was not satisfied the consumer had proven ownership of a majority of items and appointed an investigator in November 2007.

In May 2007 the consumer didn’t feel the insurer had progressed their claim within a reasonable period and engaged a solicitor to act on their behalf. Shortly thereafter the claim was settled. The consumer is now seeking reimbursement of $2,000 being the solicitors’ costs.

Points to note are:

  • Legal costs and the extent of cover
  • Utmost good faith and Sections 13 and 14 of the Insurance Contracts Act (1984)
  • Clause 10.2(vii) of the Terms of Reference

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