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Insurer must pay claim despite driver's undisclosed drug conviction

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An insurer has been ordered to pay a motor claim despite the policyholder’s failure to provide information about a previous drug conviction.

The Australian Financial Complaints Authority (AFCA) ruled that the insured had not breached the duty of disclosure or made a misrepresentation when the policy was incepted because the insurer’s questioning on the matter was confusing.

The man bought an Eric Insurance policy through a car dealership on November 27 2019, and lodged a claim after his vehicle was written off in a collision on April 26 last year.

But the insurer declined the claim after finding that the customer had a criminal record that he did not disclose. It said if it had known the complainant was convicted of drug possession in 2015, it would not have agreed to insure him.

However, the complainant said he thought the question was specifically about driving offences.

The insurer says the question asked by the dealership was: “In the last five years have you or anyone likely to drive/ride the vehicle ever been charged or convicted of a criminal offence, including drug and alcohol-related driving offences (DUI)?”

AFCA says that read literally, the question asks about all criminal offences, but that the words after the comma “make the question harder to understand”.

“The ‘criminal offence’ question followed three other questions, all of which were about driving,” AFCA said.

“This may have inclined the complainant to assume the ‘criminal offence’ question was also about driving.

“The policy is a car insurance policy. A reasonable person might have expected the insurer to ask about driving offences, rather than criminal offences in general.

“I am satisfied that the complainant thought he was only being asked about criminal offences related to driving.”

As a result, there was no breach of the duty of disclosure, and no misrepresentation, and the insurer must pay the claim.

“The insurer asked the complainant about his criminal history. However, the wording of the insurer’s question was confusing, and the complainant’s answer was reasonable in the circumstances,” AFCA said.

“Therefore, it was unfair for the insurer to rely on the complainant’s answer to deny the claim.”

Click here for the full ruling.