As has been previously discussed, insurance companies should be very careful before calling their customers liars, fraudsters or arsonists. But it seems to be the fallback position far too often for an insurance company not wanting to pay a claim.
The consequences for a customer of being accused of arson, fraud or misstatement are enormous.
Even though we have a large number of insurance companies in New Zealand, and they compete vigorously for business, the collective doors quickly slam closed when a person accused of lying or dishonesty tries to obtain insurance.
Even where that decision is not yet proven and is being strenuously challenged, having the claim declined can often be the least of the person’s worries.
What immediately follows the claim being declined is having all the insurance cancelled.
That means that the customer’s house, contents and car will be uninsured. The consequence of that can itself be dire.
Once the mortgagee or hire purchase company finds out that there is no insurance, they will immediately demand repayment, and a person’s entire life can start crumbling around them. In the case of a business, without insurance (particularly liability insurance) the company can no longer continue.
And when the customer, even through a competent broker, attempts to find another insurance company the doors are firmly closed.
No one will touch them while the allegation remains. In fact, even after winning a case against an insurance company it can even be difficult to obtain insurance because the collective members of the insurance industry take a “where there’s smoke there must be fire” angle. No one can force the insurance companies to provide insurance, and people can find their entire personal and business lives crippled by a false allegation of dishonesty.
In fact, even where there is no fraud, insurance companies may get the “pip” with a customer who they perceive has had more than their share. There have been cases in which a customer has forcibly demanded that the insurance company honour the promises under the contract, and after the company begrudgingly does so, the customer finds his or her insurance cancelled and no one else will touch them.
No one would suggest that there is direct collusion between insurance companies in this respect, but the doors certainly slam closed very quickly once an insurance company finds out that you have had a scrap with another insurance company. This is not speculation, there are actual cases, and the consequences for people sticking up for what they are entitled to can be dire, particularly in a relatively small industry such as New Zealand.
And of course, if you forget to tell your insurance company that you have previously had a scrap with another insurance company or even had an allegation of fraud made against you, you may as well not bother paying the premium. Because once the insurance company finds out that you have previously been involved in such a fracas, it will undoubtedly void your policy and refuse your claim.
Which brings us back to the original point. Insurance companies need to be very careful before they make false allegations against their customers. In countries such as the United States of America, such allegations can result in gigantic damages awards based on bad faith, and insurance companies have learnt to be very careful.
In New Zealand, the Courts have awarded damages for breaching the duty of good faith, or wrongfully declining claims. But the awards are minuscule, and the consequences for the insurance company concerned are relatively minor.
Even after the insurance company’s allegation has been challenged, it can be almost impossible to get them to reverse the decision. The best that will often happen is an offer of a cash payment, without admission of any liability, or any withdrawal of the allegations. The insurance company hedges its bets, and this has similar dire consequences down the track for the customer who has been wrongly accused.
If you have been falsely accused of fraud or had a claim declined, that may be the least of your problems. Try running a business, getting a mortgage or taking out hire purchase when no one will insure you.
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*Andrew Hooker is a partner in the North Shore law firm Turner Hopkins and a director of Claims Information Specialists Ltd, running an insurance information web site www.claimsinformationspecialists.co.nz
2 Comments
Andrew
But it seems to be the fallback position far too often
That sounds a bit ugly. I had no idea Insurance companies did this so often. Sounds like you have some data to back your claim - what sort of numbers are we looking at per year that are wrongly declined by insurers for alleged criminal activity ?
Interesting article. You are right Insurer's need to be aware how there actions affect there customers ability to obtain insurance, finance etc. However though I can only speak for my self ant the Insurer I worked for in NZ for 30+ plus years I would never deny or attemt to deny a claim for fraud/dishonesty unless I was certain that there was evidence to back it up. Like wise I would not void or recommend cancelling a policy unless the proben breech justified a decision and I always considered what the ongoing effect on the customer was likely to be
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