A vehicle owner who failed to inform his insurer that his car had pre-existing damage has lost his challenge against its decision to cancel his existing policy and reduce its liability for a claim. 

The man lodged a claim after a third party rear-ended his vehicle during a road rage incident, damaging his back bumper in June last year.

Suncorp initially accepted the claim, offering the policyholder a cash settlement of $5943 as it was unsure if it could guarantee repairs due to existing damage to the car’s panels and tail light. 

The claimant rejected the insurer’s offer, saying he was concerned that its assessors missed further damage caused by the incident.

The insurer further investigated the claim and interviewed the policyholder regarding the circumstances of the event. During the interview, the man told insurer representatives that the pre-existent damage had been present before the policy had been purchased. 

Suncorp said the complainant’s failure to identify the damage when applying for the policy had been a breach of the policy’s terms, noting that he had answered “no” to a question asking if the vehicle had any existing damage or rust.

The complainant said he did not recall being asked about the vehicle’s condition when applying for the policy in May last year and argued that the damage to the tail light had been “only minor”. 

He said other pre-existing damage to the vehicle had been caused by wear and tear and that it was unfair for the insurer to change its decision, given that the damage was irrelevant to the claimed event. 

The man alleged the insurer’s decision to decline the claim came as “revenge” after he made a complaint about its assessor. 

However, the Australian Financial Complaints Authority (AFCA) decision agreed with the insurer’s opinion that the complainant had omitted relevant information that would have influenced its decision to offer the policy.

“The vehicle had multiple dents, scratches and a broken tail light,” AFCA said.

“The damage to the rear of the vehicle was more extensive than could reasonably be considered ‘minor scratches’, and damage caused by reversing into a shed is not classed as wear and tear.”

The ruling found the claimant had failed to take reasonable care when he made the misrepresentation. 

Suncorp said that the policy form asked the complainant “a clear and unambiguous question about the condition of the vehicle” and informed him of the importance of answering accurately.

The insurer said that if it had been aware of the damage, it would not have agreed to offer the claimant the comprehensive car insurance policy, as its underwriting guidelines outlined exclusions for vehicles with damage that had not been caused by wear and tear. 

Suncorp said an application for Third Party Property Damage cover (TPPD) would have been accepted given the vehicle condition and that it had instated such a policy after it removed and refunded the complainant’s comprehensive car policy. 

AFCA said that the insurer had reasonably explained its decision. 

“I am satisfied the insurer clearly set out the duty, explained to the complainant that he was required to answer its questions honestly and accurately, and clearly explained the importance of answering its questions and the consequences of failing to do so accurately,” AFCA said.

“The guidelines show if the complainant had disclosed the existing damage, the insurer would have accepted him for a TPPD policy.”

“As the insurer has shown it would have offered the complainant a TPPD policy if it had known the true condition of the vehicle, under section 28 of the [Insurance Contracts Act 1984], the insurer is entitled to reduce its liability to TPPD cover.”

The complainant also had his appeal for compensation for financial and non-financial losses quashed by the ruling.

AFCA noted that Suncorp had offered the vehicle owner $7635, which was above the TPPD policy $5000 liability limit and had handled the claim “within reasonable timeframes and in line with good industry practice”. 

“An insurer changing its claim decision from an acceptance to a decline does not automatically mean the insurer made an error or is required to pay compensation for non-financial loss,” AFCA said.

“I am satisfied the insurer declined the claim as a result of the information the complainant gave during the interview, not because he made a complaint.”

Click here for the ruling.