A woman who inaccurately responded to questions about debt in her online application for car insurance has lost a claim dispute with Hollard.

The woman, who was subject to a part 9 debt agreement under the Bankruptcy Act, says she made an honest mistake and sought that Hollard pay her car accident claim and that her insurance records be expunged.

The Australian Financial Complaints Authority (AFCA) denied both requests on the basis she had not accurately disclosed her financial status and Hollard would have declined to offer her cover at the outset had she answered accurately.

AFCA and Hollard both accepted her mistake was “innocent,” but the ombudsman said the consequences of non-disclosure – even if unintended - were “that the insurer is entitled to decline the claim and cancel the policy”.

“While I empathise with the complainant’s situation, she still has a duty of disclosure about this claim in relation to any future requests for insurance cover.”

“I am not satisfied it is proper the insurer expunges from its records any reference to the declined claim and the cancellation of insurance,” the ombudsman said. “The insurer has an obligation to maintain the integrity of its records and to verify information given.”

Hollard clearly informed the woman of the general nature and effect of her duty of disclosure before the policy commenced, AFCA said.

She purchased the motor policy via Hollard’s website in January 2020 and in April last year, lodged a claim after a car accident. Hollard investigated and found she had failed to disclose she had entered into a Part 9 debt agreement even though this was specifically asked about.

This prejudiced Hollard, which would not have offered cover if the woman correctly answered the relevant question, AFCA ruled.

“The insurer is entitled to refuse payment of the claim and cancel the policy based on non-disclosure and is not required to change its records,” AFCA said.

Hollard provided screenshots of the process for incepting the policy showing the woman was advised the importance of providing accurate answers, and answered “yes” when asked “Have you read, and do you understand your duty of disclosure?”

The woman was then asked to respond either Yes or No to the question “Are you, or any other named insured, currently bankrupt or subject to a debt agreement or personal insolvency agreement under part 9 or part 10 of the Bankruptcy Act?”

She answered No and was able to complete the application. Had she selected Yes, a message would have displayed advising Hollard would be unable to offer insurance due to its underwriting guidelines.

There was no opportunity to declare an “unsure” answer and Hollard says it was her obligation to check and confirm the information to ensure her answer was accurate. As she elected not to check prior to answering, Hollard said she made an informed decision to incorrectly declare she was not subject to a part 9 debt agreement.

The woman said she was aware she was under a debt agreement and that it was subject to the Bankruptcy Act but she was not aware it was “part 9”.

She entered into the agreement during a "traumatic and highly stressful" period of her life and was therefore unable to fully comprehend its consequences and nature.

Written material only “nominally mentioned” that it was a part 9 agreement, and she says she acted in good faith and was unaware the answer she provided to Hollard’s question was incorrect.

AFCA accepted this but said a “reasonable person in the circumstances could be expected to know this matter was relevant” to Hollard’s decision over providing cover.

“She was aware she was under a debt agreement in accordance with Bankruptcy Act. Given this, I am satisfied the question asked was about a matter known to the complainant,” AFCA said. “The complainant elected to answer the question and in doing so I am satisfied this was in breach of her duty of disclosure.”

Hollard provided a statutory declaration from its underwriter confirming it would have declined the risk had she disclosed her debt agreement and refunded the motorist’s premiums.

See the full ruling here.