PROFESSIONALISM / AFCA Case Study
ALTERING THE CLIENT’S PROPOSAL RESPONSE AND MAKING A CLAIM UNDER A PRIOR POLICY
BY MARK RADFORD
Principal, Radford Lawyers
This determination involved a denied claim regarding prior circumstances not notified to the insurer. The insurance broker had changed the insured’s response on a proposal and created confusion regarding what circumstances were actually notified.
KEY LESSONS •
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Amending an insured’s proposal response is not recommended. If you do this and fail to keep any form of contemporaneous record of the alteration, what was communicated to the client about the alteration and their agreement to this, you will breach your duty of care and become exposed to potential loss. Where a claim is rejected by an insurer under a claims made liability insurance policy, regarding a failure to notify circumstances when applying for cover, consider whether a claim can be made on the operation of section 40 or other provisions of the Insurance Contracts Act (the Act). For example, even if no claim is made against the insured in the prior insurer’s period of cover, section 40(3) can deem a claim to have been made in that period if the insured gave the insurer notice in writing of facts that might give rise to the claim ultimately made against the insured, as soon as was reasonably practicable after they became aware of those facts, but before the cover provided by the policy expired.
18 / INSURANCE ADVISER JUNE 2022
BACKGROUND FACTS
The complainant had engaged the broker to arrange new directors and officers liability insurance after they ended their relationship with the previous broker due to a deteriorating relationship. The new broker arranged cover with a new insurer. During the policy period, a claim was made due to legal proceedings issued against the complainant and several of their officers. The insurer rejected the claim on several grounds, one of which was because of the complainant’s failure to disclose that they had been aware of circumstances that led to these proceedings (i.e. denied circumstances). The previous insurer appears to have been made aware of circumstances that led to the denied claim by the new insurer, although during the proceedings the subject of the claim under the new policy was issued after the previous insurer’s policy had lapsed. The complainant did not dispute the insurer’s decision. They argued that the broker was responsible for the failed claim, as the circumstances had been disclosed in the proposal but this was altered by the broker without their consent. The complainant had answered ‘yes’ to questions on prior claims or proceedings or notices regarding attendance at
investigations etc., however the broker had changed the responses to ‘no’. The broker alleged that: • They did so after discussing this with the complainant, but did not keep any contemporaneous record of the discussion. • It had been another individual’s circumstances that the ‘yes’ response was intended for. These circumstances had already been notified to the insurer, which had applied an exclusion to them. Whilst not stated in the determination, we assume this was the logic for the broker changing the answer from ‘yes’ to ‘no’ (i.e. no new circumstances beyond those already notified). • The complainant never disclosed the denied circumstances. The complainant maintained they were never informed of the change and that they had answered ’yes’ by reference to the denied circumstances and had included paperwork related to those circumstances. However, the complainant was not able to produce any contemporaneous evidence of this. The broker also appears to have alleged that the prior policy might have responded to the circumstances as a notified claim under section 40 of the Act.
