Insurance Law: Late notification of a claim

Section 54 of the Insurance Act

Insurance policies often require that any claim under the policy be notified to the insurer “as soon as is reasonably practicable” (or something similar).

What happens if the insured doesn’t notify the insurer of a claim as soon as is reasonably practicable? Can the insurer deny the claim?

It is not widely known that in this situation, section 54 of the Insurance Contracts Act 1984 might assist the insured. Section 54 might, in effect, “excuse” (our term) the insured’s late notification of the claim.

Section 54 potentially applies to an insurance policy that permits the insurer to refuse to pay a claim, either in whole or in part, because the insured has done some act (or omitted to do some act) after the policy was issued.

Section 54 is a difficult section. Here’s a brief summary.

If the act or omission could not reasonably be regarded as being capable of causing or contributing to the insured loss, the insurer may not refuse to pay the claim. Instead, the insurer may reduce its liability by the amount that fairly represents the extent to which its interests were prejudiced by the act or omission. On the other hand, the insurer may refuse to pay the claim if the act or omission could reasonably be regarded as being capable of causing or contributing to the insured loss. However, if the insured proves that no part of the insured loss was caused by the act or omission, the insurer may not refuse to pay the claim by reason only of the act or omission. If the insured proves that some part of the insured loss was not caused by the act or omission, the insurer may not refuse to pay that part of the claim.

In the case of late notification of a claim, the question is: To what extent (expressed as a monetary sum) were the insurer’s interests prejudiced as a result of the late notification of the claim? This in turn requires consideration of what would have happened if the insured had notified the claim promptly.

If the late notification of the claim hasn’t caused any prejudice to the insurer, the insurer can’t reduce the amount that it has to pay because of that late notification.

We are highly experienced in this area and we can help you to deal with your insurer.

About The Author - Stanley Drummond

Stanley Drummond is a Partner who specialises in superannuation, managed funds, life and general insurance, financial planning and financial services regulation.  Stanley's expertise in these...