In order to prevent circumstances in which an insurer rejects a claim on a technicality even though the insured has submitted a valid claim, Section 54 of the Insurance Contracts Act was created. Prior to the passage of Section 54, insurers frequently rejected claims for very small violations of the terms of the policy, leaving the insured with no other options.
A claim lodged by an insured who has not complied with a provision of the insurance policy cannot be rejected by the insurer under Section 54. Instead, the insurer is only allowed to lessen its obligation if it can show that there was a specific harm to its interests. This clause effectively forbids insurers from rejecting claims due to insignificant policy violations.
Nonetheless, if the insured’s action or inaction was the sole reason for the loss sustained, the insurer may still reject the claim. In this situation, the insured can reply by demonstrating that any portion of the loss was not brought on by their act or omission, in which case the insurer is obligated to cover the portion of the loss not brought on by the act or omission.
Whenever an insurer rejects a claim, the insured should analyse the letter of rejection to find out why. The insured may have grounds to challenge the denial if the insurer bases its refusal on non-compliance with the policy.
When attempting to recover from a third-party insurer who asserts that their insured has not paid their excess, an insured party may request, pursuant to Section 54, that an insurer settle a claim. The excess for the insured is subtracted from the payment by the insurer. But, if the insurer declines, there is no legal recourse, and many insurers are unaware of this portion of the Act.
If you have any further questions, please contact our Legal-Litigation Lawyer Nikola Fratric on (03) 9999-1122 or by email nik.fratric@adclegal.com.au.