Insurers must provide proof that claimants have made fraudulent misrepresentation or non-disclosure when a claim is denied on the basis that false information has been deliberately provided.

The guidance on how such cases are determined is outlined in an Australian Financial Complaints Authority (AFCA) document, explaining its approach to disclosure-related disputes.

AFCA says if a claimant knowingly gave details “without belief in its truth or recklessly, not caring whether it is true or false”, this will qualify as fraudulent behaviour.

“Given the seriousness of the allegation, AFCA would expect the insurer to provide clear and convincing evidence to establish this,” it said.

“If the misrepresentation or non-disclosure is fraudulent, then the insurer can generally void the policy if it can show that it would not have issued the same policy for the same premium if the correct information was disclosed.”

But a ruling may still go against an insurer even if it has evidence a claimant has provided deceptive information. AFCA says this could occur when the undisclosed information made little difference to the insurer’s position.

“In limited cases, voiding the policy may not be fair,” AFCA said. “For example, it would have simply charged a slightly higher premium or imposed a condition that made no difference to its liability.

“In those cases, AFCA will consider whether it is fair in all the circumstances for the claim to be denied.”

The ruling AFCA makes will take in a number of considerations, including the extent of prejudice the non-disclosure or misrepresentation had on the insurer’s position, the requirement to deter fraudulent conduct and whether the impact extends beyond the claimant who perpetuated the fraud.

“Whilst AFCA is not a court, it is required to do what is fair in all the circumstances,” the dispute mediator said. “AFCA considers it is appropriate to have regard to this provision given it aligns closely to our purpose.”

In disputes where insurers deny a claim because the complainant has innocently failed to disclose a matter, AFCA says there must be evidence claimants have been clearly informed of their duty of disclosure before the policy was issued.

AFCA also says an insurer is not legally required to clearly inform a complainant of their duty at each renewal, as most insurance policies run for one year.

Click here for the document.