State Your Claim
The Age
Monday April 15, 2002
MICHAEL McINTYRE was keen to sell his Mercedes-Benz E240 Classic, so he didn't think twice about handing the keys to a potential purchaser - a well-dressed young businessman who asked if he could take it for a test drive. That was the last Mr McIntyre (not his real name) saw of his $65,000 set of wheels.
His insurance claim was denied because of a clause in his policy that read: "Private Use and Business Use both cover the private use of your car in conjunction with repairing, servicing, testing, free driving lessons, private car pooling and demonstration for sale, provided you are the driver or passenger during the demonstration."
Mr McIntyre argued that the exclusion had been "hidden away" in the definition section of the policy and said that he had read the exclusions listed in pages 20-21 of the policy. These exclusions provided no cover if the car was, for example, being used for hire or reward, or was carrying more than the legal number of passengers.
The Insurance Enquiries and Complaints Scheme (IEC), an independent dispute-resolution body, agreed with him and upheld his claim, saying the insurer did not satisfy the "clearly inform" test.
"It is inappropriate to set out a substantive exclusion in the definition section of the policy
... all exclusions or limitations of cover should as far as possible be included in the one division or section of the policy."
Although premiums for general insurance grow more and more expensive, it seems the coverage they offer gets scantier.
Each year, more and more people who have purchased policies for common types of consumer insurance - including life, home contents, motor vehicle and travel - complain that they have been cheated out of their rightful claims by a wide range of slyly worded and dubiously interpreted conditions, definitions and escape clauses.
It's a problem the IEC acknowledged in its 2001 Annual Review. Against a backdrop of an industry in turmoil due to the HIH collapse and widespread concerns about public liability insurance, two-thirds of the 2543 cases that reached the IEC last year were based on simple disputes over whether a claim was covered within the policy terms, the application of conditions and exclusions of the policy to the claim, and the existence or extent of any non-disclosure by the claimant.
The report said there was a "perennial need" for the industry to refine and improve its communications practices both at the claims stage and at the sale of policy, which often occurs over the phone.
"The lack of understanding by the policy holder plays a major part in disputation," it said. "The question is whether the sales and marketing practices of insurers pay sufficient attention to avoiding the same problems time-after-time 'down the line'. Clearly this is one area where the industry can improve its performance."
However, Insurance Council of Australia (ICA) spokeswoman Sandie Watson disputes the suggestion that insurance policies are worded to confuse those who purchased them or evade the issuer's responsibility in paying claims.
"Section 52 of the Trade Practices Act, the Insurance Contracts Act and the insurance industry's own Code of Practice prohibit insurers from misleading consumers," she says.
"The General Insurance Code of Practice (requires) plain wording on policy documents as part of the service standard for the industry. Policies must clearly show exclusions which are items that are not covered under the policy ... (and) they must be listed on the policy document provided by the insurer at the time that the policy is issued."
IEC public affairs manager Paul O'Connor says there is no such thing as "fine print" in insurance policies because of legibility requirements in the Insurance Contracts Act.
He says most complaints and disputes arise when consumers fail to read their policies and fully understand the nature and extent of their insurance coverage until a loss occurs.
"An insurance policy is a legal document ... and is not the simplest thing to read," he explains. "There may be a need to have specific cover provisions to meet an individual's needs."
Tell that to Nick Lee (again not his real name) who faced a spirited stoush with his insurance company over the definition of a "luggage compartment" when his bags were stolen from a mini-van parked in the security area of an exclusive golf club while he was playing golf.
A claim was made under his travel policy for $3453.50 in respect of luggage but the insurance company limited his payment to $2500 because it considered that the luggage had been stored in the "passenger compartment" of the vehicle, which was less secure and more visible to potential thieves.
Company representatives argued that the intention of the policy was to cover luggage "securely contained" within "a locked boot" or "luggage compartment". They said they would only pay a limited benefit for luggage located elsewhere.
Mr Lee responded that the van had several rows of seats, with the upright portion of the rear seats being much higher than the uprights of the other seats. This partitioned off the "passenger compartment" from the large space between the rear seats and the back door, which was clearly intended for luggage or, in other words, a "luggage compartment".
Because it was clear this area was intended for luggage - in fact, there was no alternative storage space in this vehicle - it all boiled down to the meaning of "compartment". The policy did not define "compartment", so the IEC relied upon the dictionary meaning, which states that it is an area set aside from other areas by a barrier designed with the purpose of dividing the areas.
Based on this, and the fact that many modern vehicles have similarly designed "luggage compartments", the IEC found that Mr Lee was entitled to his entire $3453.50 claim.
Consumer Credit Legal Service in Victoria manager Carolyn Bond says people selling insurance often do not make it clear that there are limitations to the cover offered.
She says one of the big-four banks recently tried to sell one of her clients a low-cost mortgage protection policy that would supposedly protect her if she couldn't make her loan repayments due to sickness, disability or death.
"That sounds fine but after careful reading of the 11-page brochure we realised that if you're permanently disabled, the insurance company will only cover payments for 12 months - and we're talking about a 25-year housing loan!
"People taking out a mortgage already feel under pressure. They're signing a lot of documents at one time and they're told 'You must sign up this week, or today, because this sort of insurance won't be available later in the life of your loan'."
Ms Bond says people are attracted to these policies that appear to be good value but they often fail to protect them against the things they are really worried about, such as being seriously injured in a car accident, ending up in a wheelchair or dying and leaving their families without any means to pay a large debt.
"This sort of thing is grossly unfair. The insurers are selling consumers a product that has holes in it," she says.
MIND THE GAPS
When purchasing travel insurance, read prospective policies carefully.
Exclusions commonly exist for pre-existing medical conditions, activities such as skydiving and bungee jumping, the insolvency of a travel service provider, additional expenses in certain circumstances and luggage left unattended in a public place.
Ruby Lynch (not her real name) arrived at Bangkok Airport eight hours before her flight to Australia was due to depart. Tired and jetlagged, she was directed to a dimmed section of a private transit lounge and given a blanket. Before falling asleep she placed
her handbag on her chest and her hand luggage on the floor beside the couch with the strap wound around her hand.
She was woken by an attendant shortly before her plane was due to depart. It wasn't until her arrival home that Ms Lynch discovered that jewellery contained in her luggage had been stolen.
But a claim made under her travel policy for $5339 was refused on the grounds that she had left her luggage unattended in a public place at the time of the theft. Ms Lynch took the matter to the IEC, where policy definitions of "unattended" and "public place" featured prominently in deliberations about whether or not her claim should be paid.
"Although her possessions had been placed on her chest and on the floor next to her ... they could be removed without her knowledge while she slept," part of the IEC determination read. "Furthermore, while she was asleep it cannot be said that the luggage was under observation by her. Although the claimant was physically adjacent to or with her property, according to the terms of the policy it was unattended while she was asleep.
"The claimant described the lounge as a restricted area with patronage available only to first and business class travellers. Nevertheless, first and business class travel tickets are readily available to any member of the public ... with the means to purchase (them) ... and as such (purchasers) are members of the travelling public ...
"The panel is thus satisfied that the insurer has established the ingredients of the exclusion and is therefore entitled to deny liability for the claim."
ESCAPE CLAUSE
Life insurance
Be warned. When you sign a policy with total and permanent disability (TPD) benefits, insurers usually only cough up if you're completely unable to work in any capacity, irrespective of your former occupation. For example, a 52-year-old senior police officer who had a cardiac arrest and open-heart surgery was unable to return to the police force. Though his doctor provided an incapacity certificate, the insurance company declined his claim because although he could not work in his "own occupation", there were other jobs he could purportedly do. The Financial Industry Complaints Service (FICS), which adjudicated on the dispute, said: "The insured made a very good recovery from a serious heart attack and is trained and experienced in office management and supervisory duties to undertake gainful employment now. He has failed to prove that he is unlikely ever to be engaged in any occupation for which he is reasonably suited."
Home contents insurance
Home owners should beware of clauses in policies that let insurers off the hook if theft or damage is caused by, or results from, "a deliberate act of any person who enters the site with your express or implied consent or that of a person you have given permission to invite people on to the site". This might include friends, relatives, neighbours, colleagues, drinking companions or even the plumber you called in to fix the leaking ceiling. One case adjudicated by the IEC last year involved a couple who
discovered that jewellery and other property valued in excess of $3000 was missing from their house. They pointed the finger at their cleaner's assistant but the insurer denied liability on the grounds that the property had been stolen by a person who had been invited into the claimant's house. Such theft was excluded from the cover provided in the policy.
Motor vehicle insurance
Comprehensive policy-holders often come a cropper when they fail to adequately inform the insurer about claims history, additional regular drivers, traffic offences, criminal convictions, vehicle modifications, drink-driving charges and speeding tickets.
Insurers can reduce their liability to nil, even when non-disclosure of these and other matters has nothing to do with the claim at hand. For example, one man had his motorcycle stolen while it was on the footpath of a suburban street. His insurance company argued that if he had made full disclosure of his driving record, which included seat belt and speeding offences, plus a previous accident and claim, it would not have offered him insurance in the first place.
The company claimed it used a complicated points system to determine whether insurance applications were accepted or denied but failed to provide the IEC with sufficient information on how this would have operated in the motorcyclist's case to exclude him.
As a result, the IEC found that the man should receive a settlement based on an agreed value of the vehicle less the appropriate policy excess.
© 2002 The Age