An insurer's liability claim denial has been overruled by an Australian Financial Complaints Authority (AFCA) panel, which ordered court proceedings be monitored to determine if a complainant is personally liable for injuries sustained in an accident.

The vehicle owner lodged a claim with Lifestyle Insurance Group under the legal liability benefit of his recreational vehicle policy after he was issued legal proceedings in June, alleging that his actions resulted in serious injuries sustained by a tow truck driver, referred to as Mr A, in August 2019.

Mr A had been lying beneath the insured vehicle before the car suddenly rolled off the blocks it was resting on and "came to rest" on his torso. Lawyers representing Mr A argued that the complainant acted negligently by releasing the handbrake against the instructions of the tow truck driver and failing to inform Mr A of what he had done.

Lifestyle Insurance did not dispute that the complainant had a valid claim but said the benefit could not cover the event because it was covered by a "statutory or compulsory insurance policy," which had been an exclusion within the recreational vehicle policy.

The insurer argued that the exclusion applied because Mr A had been injured during his work duties and had made a claim against Workcover QLD and the Traffic Accident Commission (TAC).

AFCA disagreed with Lifestyle Insurance's assessment, saying it could not apply the exclusion until legal proceedings determined whether the claimant was liable to pay costs.

"If the injury to Mr A were found to arise from the complainant's negligence, then this would most likely be considered an accident arising out of the use of the recreational vehicle," AFCA said.

"The panel accepts this would fall within the terms of cover provided by the policy."

It also said it was unclear whether TAC was compensating Mr A and suggested that the statement of claim made against the complainant was above what would be covered by a Workcover claim.

The panel required the insurer to continue to monitor proceedings, saying it would be unfair to apply the exclusion before the trial had made its determination.

"Should the court determine or the parties to the court proceeding agree, to resolve the proceedings through the statutory and compulsory scheme then the insurer can close its file," it said.

"Otherwise should liability be found against the complainant for matters not covered under the statutory or compulsory scheme then insurer must determine its liability in accordance with the terms of the policy."

Click here for the ruling.