Section 54 doesn’t save Uber driver from declinature

Mar 2020 | Insurance

The Australian Financial Complaints Authority (AFCA) recently affirmed1 an insurer’s decision to decline a claim for vehicle damage because the policyholder failed to disclose that he was using his car for ridesharing purposes with Uber, despite the vehicle being in personal use at the time of the accident.

Background

The driver was involved in an accident on 16 April 2019, causing damage to his car. At the time of the accident, the vehicle was being used for personal purposes and not for ridesharing.

The driver held a comprehensive vehicle policy (policy) with the insurer, and lodged a claim in respect of the damage caused by the accident. The policy had originally been taken out by the driver on 9 March 2018, and was subsequently renewed on 9 March 2019.

The driver had renewed the policy online and was provided with documents which set out his duty of disclosure pursuant to s 21 of the Insurance Contracts Act 1984 (Cth) (Act). Section 21 places an obligation on an insured to disclose every matter the insured knows (or a reasonable person in the insured’s circumstances could be expected to know) is relevant to the insurer’s decision of whether to offer insurance.

As part of the renewal in March 2019, the driver declared the vehicle was for private use only, and that it was never used for any commercial use, including Uber. However, records indicated the car had been registered with Uber from 10 March 2018; the day after the driver entered into the initial policy. The driver did not disclose this change of circumstances at renewal. 

Issues

In determining whether the insurer was entitled to decline the driver’s claim, AFCA considered:

  • Whether the driver breached his duty of disclosure to the insurer; and
  • If yes, whether the insurer was entitled to deny liability in respect of the damage caused by the accident.

Determination

Non-disclosure

AFCA found that the insurer had complied with s 21B of the Act at the time of renewal by providing the driver a copy of matters previously disclosed by him in relation to the policy and requesting  that he disclose any change to those matters.

Relevantly, the insurer’s offer to the driver to renew the policy identified that he had previously disclosed the vehicle was for private use only and ‘private use’ was defined as:

'The car is NEVER used for any commercial use, including the following purposes
carrying passengers for payment (including taxis and/or ridesharing, e.g., Uber).’

AFCA held a reasonable person in the driver’s position should have disclosed that the car was being used for commercial purposes.

AFCA held that had the driver disclosed the car was being used for ridesharing purposes, the insurer, pursuant to its underwriting guidelines, would not have offered the driver an insurance policy. Therefore, subject to refunding any premium paid following renewal of the policy, AFCA held the insurer was entitled to reduce its liability to nil under s 28(3) of the Act and cancel the policy pursuant to s 60 of the Act.

Section 54 of the Act

AFCA also considered the driver’s argument that s 54 of the Act prevented the insurer from denying coverage. AFCA acknowledged that 'section 54 of the Act can, in certain circumstances, prevent an insurer from declining a claim or reducing its liability because of an act or omission which occurred after the contract has been entered’. Generally speaking, where an act or omission relied on by an insurer to decline a claim was not capable of causing or contributing to the loss, the insurer is not entitled to decline the claim. In this instance, the use of the vehicle for ridesharing purposes did not cause or contribute in any way to the accident.   

However s 54 only assists an insured where the act or omission occurred after the contract is entered into. AFCA held that the relevant act, which was the driver’s breach of his pre-contractual duty of disclosure at the renewal, occurred prior to the renewed policy being entered into in March 2019. Consequently s 54 did not assist the driver.

Conclusion

The decision is a win for insurers and a reminder that they should carefully check their underwriting guidelines to ensure that there is clarity around what risks they are prepared to underwrite. This case would likely have been decided differently had the underwriting guidelines been ambiguous or indicated that the insurer would have been prepared to cover vehicles being used for commercial purposes.

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1 In Auto & General Services Pty Ltd, case number 644749 (13 January 2020).

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