Table of contents - this section

• Prejudice to an insurer generally
  
• Fraud by an insured

10. Insurance Fraud

Insurers take fraud very seriously. Where in the past an insurer may have only refused to pay a claim, if fraud is now proven, the insurance company may hand over its evidence to the police and request criminal prosecution.

10.1 Prejudice generally

The remedies available to an insurer following breach of one of the insured's duty such as utmost good faith, disclosure or as to misrepresentations generally are covered in the Insurance Contracts Act 1984 (Cth) ("the Act").

Fraudulent claims are dealt with separately. However in general terms, an insurer cannot refuse to pay a claim either in whole or in part by reason of some act or omission of the insured, but only reduce its liability to pay the claim by the amount that fairly represents the extent to which the insurer's interests were prejudiced.

If an insurer could show, other things being satisfied, that it would not have written an insurance policy had it received notice of certain information, it would be entitled not to avoid the policy as such, but could anyway reduce the claim payment to nil.

10.2 Fraud

In the Act it is clearly stated that where a claim is made fraudulently the insurer may avoid payment of the claim, but if the fraud is held by the Court to be only at minimal or insignificant part of the claim and that non-payment of the remainder of the claim would be harsh and unfair, the Court may order the insurer to pay such amount (if indeed any) as considered just and equitable in the circumstances.

For example, in the case of a theft claim in the order of $20,000 the insured may only have committed a fraud in describing a stolen bottle of alcohol as being full, whereas in fact it was only quarter-full. In that case it may well be considered by the Court that payment in respect of the alcohol should be denied but the rest of the claim should be payed. As it is naturally difficult to prove fraud in law and also simply as a matter of producing sufficient evidence to prove it, some insurers consider this provision unreasonable.

The Court must however specifically refer to the need to deter fraudulent conduct in relation to insurance in making its decision, in addition to any other matter it considers relevant.

As with any concept of the Act, for interpretation relating to an individual set of circumstances, it is necessary to consult a solicitor. Please see our Legal Help page if you have any needs in this area.