A homeowner has lost a dispute over a fire damage claim after he failed to read policy renewal letters or disclose three criminal convictions for possessing methylamphetamine.

The man, who held two policies to cover his home and an investment property with RAC Insurance, told the Australian Financial Complaints Authority (AFCA) he did not know he had to disclose any convictions at the renewal of both the policies.

When the renewal documents arrived, he “was just looking at the premium amount to be paid”. Had he been aware, he would have disclosed the convictions as he did not want to be uninsured, the man told the ombudsmen panel.

AFCA said while it accepted he may have not read the renewal letters when he received them, he failed to comply with his duty of disclosure when he did not update RAC about his criminal convictions at the renewal of both policies, one starting in November 2019 and the other in August 2020.

“The panel acknowledges this was not deliberate or reckless. Despite this, the information shows a non-disclosure has occurred,” AFCA said.

The man lodged a claim a year ago for fire damage to his home. RAC Insurance cancelled both his policies after an investigation of his claim uncovered the trio of prohibited drug convictions between September 2019 and the following May.

Had he disclosed his drug related offences, RAC said it would not have accepted cover from the policy renewal.

RAC successfully showed it was prejudiced due to these failures, AFCA ruled, because it would not have renewed either policy had the convictions been disclosed.

“The insurer is entitled to decline the claim and cancel the policies, subject to refunding any premiums it may have received from the complainant for both policies. The premium to be refunded is only with respect to the last renewal period of each policy,” AFCA said.

A copy of the policy document clearly notified the man of his duty of disclosure and stated that once that notice was given, it was deemed to have been given at subsequent renewals.

“Therefore, the insurer has shown it complied with section 22 of the Act,” AFCA said.

The man said he received the renewal letters for both his policies. AFCA said these clearly stated, under a heading of ‘Important policyholder information’, that a set of questions applied to him.

The renewal offer directed him to check the answers were accurate and call the insurer if they needed to be updated.

“The letter clearly stated the insurer may refuse to pay a claim or cancel the policy if the answer is inaccurate,” AFCA said.

“Where an insured failed to comply with their duty of disclosure, the insurer can reduce its liability for the claim to the extent it has been prejudiced. The panel is satisfied the insurer has shown (through underwriting evidence) that if the complainant had made it aware of his criminal convictions, it would have not renewed the policies.”

RAC showed its underwriting system would automatically deny cover in cases where an insured answers ‘yes’ to having a criminal drug conviction in the past three years.

“In light of this, the panel is satisfied that had the complainant disclosed his prior drug related convictions, the insurer would not have offered to renew either policy. Accordingly, the panel is satisfied the insurer is entitled to … reduce its liability for the claim to nil.”

See the full ruling here.