Ombudsman calls for clear rules in new Insurance Contracts Bill around full and frank disclosure by insurers – and those buying cover.
It was an insurance scam that will earn its perpetrator a place on the list of the world's dumbest fraudsters.
The phone advisor at an insurance company took the call: The woman on the other end of the phone just wanted to check that she’d been paying her home insurance premiums, she said.
The insurance advisor told her the cover on her Auckland house, worth approximately $650,000, had lapsed a year earlier.
Thirty minutes later, she phoned back. This time, she wanted to buy a new insurance policy for the house.The insurance company's phone advisor asked whether the house had suffered any loss or damage.
No, she replied, blithely.
Later that same day, the woman made a third call to the insurance company to lodge a claim, saying a fire in the roof had damaged her house.
The trouble was, the three calls to the insurance company weren't her first calls – she'd already called 111 to report a fire in the roof of her home.
So not only was she buying a policy after the house was already damaged; not only was she buying a policy when she knew the house was damaged – but she was buying a policy after she herself called in the fire damage.
The tragi-comedy is laid out in an Insurance and Financial Services Ombudsman case note. The insurer then cancelled the policy, the note says, because she had failed to disclose that the house was already on fire when she bought the policy.
The Ombudsman Karen Stevens says it's an object lesson in the important of insurance companies and their customers being full and frank with each other, and she's pushing for clear rules in the Government's new Insurance Contracts Bill. Consultation closes in two weeks' time.
The woman complained to the Ombudsman about the decision, saying the insurer didn’t provide her with the policy document, nor give her the opportunity to correct the answers she gave over the phone.
According to the case note, she believed it wasn’t too late to arrange the policy when she did, because her mother had told her the house was on fire and she could not actually see the flames at that point.
The woman also said, due to “cultural misunderstanding”, she believed she had been asked by the insurer about loss or damage up to the day before she arranged the policy.
Liar liar, pants on…
The woman complained to the Insurance and Financial Services Ombudsman when her insurer declined her claim.
But Stevens threw out the complaint, finding that regardless of whether or not the woman had seen the flames, the complainant knew the house was on fire and a reasonable person would have known the house would have suffered damage because of it.
Stevens also finds that the timeline of phone calls indicate that the woman knew the house wasn’t insured when the fire started.
The insurer is deemed to have met all its obligations and was entitled to cancel the policy.
“Insurers offer to cover risks to property that are sudden, accidental and unforeseen by the insured. They do not cover damage that you already know about – especially when you know and don’t tell them about it,” Stevens says.
The woman breached trust and good faith by not declaring the fire that was happening as the woman arranged the insurance, then claiming for it.
“This was quite clearly somebody trying to get insurance when she knew there was a fire. There was nothing accidental about it. She did say that she didn't know, there was evidence to the contrary.”
Tim Grafton, chief executive of the New Zealand Insurance Council, believes the Ombudsman is right to throw out the complaint.
“There is really no excuse for somebody to be trying to get insurance when the house is burning down and then a few hours later, when they've got the cover, make the claim.”
Consumer New Zealand chief executive Jon Duffy reluctantly agrees. While the case notes might not outline the full context, he says it's hard to see that the complainant was being reasonable and acting in good faith.
“It’s a bit of a stretch for that insurance company to pay out on an event that effectively started before insurance cover was in place.”
Lessons for consumers
While this case is unusual, there are lessons to be drawn for other consumers in general. Stevens urges people to be upfront when disclosing relevant information regarding their insurance policy.
This can look like fully describing the condition of a car or item that they’re seeking insurance cover for.
“It’s really important that consumers are full and frank with their insurer so that they can feel secure in the knowledge that when the worst happens, that the insurance will be there for them,” she says.
“If they look like they're trying to mislead or deceive the insurer, the chances are they're not going to be able to get insurance again." – Karen Stevens, Insurance and Financial Services Ombudsman
She says the moment a consumer withholds information, intentionally or otherwise, the insurer has the right to decline the claim and also throw out the entire policy, such as the case with the woman.
“It appears that somebody is acting fraudulently if they try to take out insurance after the event,” she says.
“If they look like they're trying to mislead or deceive the insurer, the chances are they're not going to be able to get insurance again.”
Grafton agrees, saying consumers should also keep their insurer updated if there’s any significant changes to items or property under insurance, such as renovations to a house.
He urges people to check when the policy is renewed whether the cover is still appropriate and that the house is insured for the right sum.
Stevens is hoping that the Government will change the rules around what's required of consumers when disclosing information through its proposed Insurance Contracts Bill.
She wants more onus put on the insurer to ask thorough questions when arranging a policy with a consumer, so that they do not unintentionally withhold information and step into dangerous non-disclosure territory.
Duffy wants to see more responsibility put on insurance companies too.
“It should be up to the insurer, who's doing this on a daily basis, to be asking the right questions of the consumer,” he says.
“Consumers shouldn’t be expected to have full knowledge of absolutely everything that could be relevant, then have their cover declined on the basis that they didn't disclose something.”
