Change of Risk or Circumstances
It is important that you notify your insurer or adviser of anything that represents a departure from your normal form of business during the insurance period.
Your insurer has assessed and accepted the risks of your insurance policy based on the information given. Therefore, alterations to your business or anything related to your business may have an impact on your insurance contract, underwriting guidelines and/or policy conditions.
Examples of Material Changes to your Business
Changes to your business that you would need to notify your insurer of, include:
- Acquisition of new companies and/or mergers.
- Change of business activities
- Contractual liabilities, including leases and hiring agreements.
- Granting of indemnities of hold-harmless agreements.
If variations such as the above are made to your business but not provided to your insurer, your claim could be prejudiced.
Notify Possible Claims and Known Circumstances to your Insurer
If there is any claim or potential claim or even a circumstance that could reasonably be expected to give rise to a claim, it must be reported to your insurer immediately, regardless of your own view as to fault. If you know of a claim or circumstance and it is not reported within the insurance period in which it arises your insurance policy is unlikely to respond.
This is because, if a claim eventuates from the notified circumstance, the insurer cannot deny indemnity, despite the fact that the claim arose outside the period of insurance. Furthermore, if you change insurers, and you have a known circumstance with the new insurer, it will not be accepted.
What is a ‘circumstance’ that could give rise to a claim?
This varies from insurer to insurer, so always check your policy first; generally the definition of “claim” will define what a notifiable event is. The advice we commonly provide our clients with is that, if an employee reports a mistake that could potentially give rise to a future claim, you should report it. Consider if the error is likely to cost your client money or be a breach of your company or professional guidelines.
We should also dispel any beliefs that any incident reported to an insurer will cause premiums to rise. Not true, unless the issue is likely to result in a claim. Instead what this does is demonstrate an understanding of the policy holder’s obligations to report any issue that might later require the policy’s assistance – something that is viewed very favourably by insurers in most cases.
Failure to Notify
If you fail to notify your insurer of a known circumstance, your claim could be denied. It will also be subject to Section 54 of the Insurance Contract Act (the Act), that:
- Prevents an insurer from relying on a term of a contract of insurance to refuse to pay a claim because of an act or omission of the policyholder that occurred after the policy began; and
- Specifies that the insurer may seek to reduce the amount they pay by proving the extent of the prejudice they have suffered because of the late notification.
Failure to notify leaves the policyholder open to a dispute over the indemnity of a claim and they run the risk of subsequent policies being cancelled due to non-disclosure, either fraudulent or innocent.
If in doubt, always notify your insurer and if a circumstance arises in to a claim, you have complied with the claims disclosure requirements under the insurance contract.
“Optimum Insurance Services Pty Ltd is a Corporate Authorised Representative of Insurance Advisernet Australia Pty Ltd (Car No. 291220), Australian Financial Services Licence No 240549, ABN 15 003 886 687.”