Thousands of Australians with side hustles or hobby businesses may have unknowingly taken out home and contents insurance that essentially leaves them without cover.
Several people have come forward about immediate cancellations to their policies after an ABC investigation into a failed insurance claim at a Heywood farm.
Griffyn Branagh last week called his insurer AAMI, owned by Suncorp, to check if his mobile bicycle repair business affected his contents insurance for his rented Torquay home.
Before the pandemic hit, Mr Branagh would travel to people's homes to repair bikes, but switched to picking them up and taking them back to his garage in 2020.
He was told his contents insurance would be cancelled by the insurer because his business was high-risk.
A spokesperson for AAMI said the company's home insurance policies were priced for the risk of a domestic private home, and that when a business was being run from a home, that risk could change "significantly".
"We communicate customers' answers to our policy screening questions – which include questions relating to the operation of a business from home – and ask them to confirm their accuracy," the spokesperson said.
Mr Branagh paid $10,000 a year for separate business insurance and was an AAMI customer for 15 years.
"We started the business not realising we weren't allowed to, no one ever questioned us on it," he said.
"It wasn't until we saw the story last week that light bulbs went off and I thought 'holy crap, we're in trouble'."
Mr Branagh said he called up several other major insurance companies, none of which would insure his contents because of the bike business.
"Insurers do have the right to decide the level of risk they'll cover and how to price that," Consumer Action Law Centre chief executive Gerard Brody said.
But experts are warning thousands more people could be affected.
"It does sound very systemic," Mr Brody said.
"If you are entered into an insurance policy and there was some sort of misrepresentation, or it was a policy that was never going to cover you, arguably there is a claim to get your premiums back because the policy was effectively junk."
Mr Brody said he would encourage the insurance industry to "look at the fairness of what they're doing and come up with a better solution for their customers".
Food truck leads to insurance cancellation
Dean and Caroline McLaren paid $4,500 a year in premiums with CGU, owned by Insurance Australia Group, for home and contents insurance for their regional Victorian home for 20 years.
Last week, Mr McLaren was also told his policy would be cancelled immediately because the food truck the couple had operated for the past five years was registered at their home address.
"Weren't trying to claim the food truck at all, we have separate business insurance for that," he said.
"It wasn't something we tried to hide. It never occurred to me to mention it to them."
A CGU spokesperson said the company's policy was "not designed for customers who run a business from home, for example, commercial cooking in the home's kitchen, where there can be an increased risk of an accident due to the work being undertaken".
They said customers were required to let the company know if there were changes that could "impact the range of risks at their property, such as running a business from home" and that it informed "customers of this requirement and the importance of this when they take out a policy and when they receive their policy renewal documents".
No part of the business was run from their home apart from occasionally chopping some vegetables.
Mr McLaren said a company representative at CGU did not ask any questions about the food truck, or what, if any part of the business, was run on his property.
Because the insurance agency cancelled the policy, the couple was given two weeks' notice to find cover with a different company.
"I asked them: what if the house burns down in the next two weeks? Will we be covered?" he said. Mr McLaren said he was not given an answer.
He also said CGU told him it was part of the couple's "duty of disclosure" to tell the company about the food truck.
But a change made in October last year to the Insurance Contracts Act means advocates argue that's not quite right.
Royal commission changed law last year
Following the royal commission into the financial services industry, the duty of disclosure for consumers was relaxed and onus was placed on insurance companies to make sure their customers were aware of what they needed to disclose.
The change means consumers now have a "duty not to mislead", meaning they must take reasonable care to answer questions properly, but do not necessarily have to volunteer information.
A spokesperson from the Insurance Council of Australia said there were "many insurers offering many home and contents insurance policies".
"Each insurer utilises different underwriting criteria, and therefore products may differ in the cover offered and the cost," the spokesperson said.
They said the insurer would explain what a customer's disclosure obligations were.
Hayriye Uluca, principal lawyer at Maurice Blackburn, said the issue could fall under unfair contract term protections if an everyday consumer was "in a weakened bargaining position".
Only a court can determine if a contract term is unfair. According to ASIC, a contract term could be deemed unfair if it would cause a significant imbalance in the parties' rights and obligations arising under the contract, is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, and would cause detriment to a consumer if it were to be applied or relied on.
Ms Uluca also said if a customer had an insurance claim denied on the basis of its underwriting material, consumers should have a right to see the underwritten risk policies.
The Australian Financial Complaints Authority's lead ombudsman for insurance, Emma Curtis, said customers should make a free complaint to the ombudsman if they could not resolve the issue with their insurer.
