Insurance: Rights And Obligations When Making A Claim

22 September, 2021 | Nathan Tetzlaff

Insurance is an integral part of modern-day society due to the protection and peace of mind that it brings. Insurance law requires striking a balance between the rights of insurers and the insured.  Legal issues can arise when an insurer refuses cover, or when insured parties breach their obligations to their insurers.

Can an Insurer refuse to Cover Loss?

Insurance is a contractual arrangement. Therefore, if the contract for insurance allows the insurer to refuse cover (also known as an exclusion clause), they may invoke that exclusion to avoid making payments. There are many types of exclusion clauses, some that seem more reasonable than others.

Insurance law recognises this issue and seeks to protect insured parties from arbitrary exclusion clauses. Insurers are not permitted to refuse cover by relying on an exclusion clause if it can be shown that the excluded circumstances did not cause or contribute to the loss. For example, suppose that:

• You have full coverage car insurance and your contract for insurance provides an exclusion to cover if you do not have a valid licence at all times.
• Your licence has expired.
• You get into an accident and seek cover.

Assuming you are faultless in the accident, can the insurer rely on the valid licence exclusion to refuse cover?

No, generally the insurer cannot refuse cover on that basis where the lack of a valid licence did not cause or contribute to the loss and if you had carried a valid licence at that time, the accident still would have happened.

Rights of an Insurer / Obligations of an Insured

Many assume that once an insurer has accepted your claim that is the end of the matter. However, that is not the case.

When an insurer has covered your loss, the insurer is entitled to step into your position and make a claim against the person that caused the loss. This means that, you have an obligation not to act in a way that harms the insurer’s right to recover from the person who caused the loss. In most cases this means things like:

• The insurer making a claim in your name;
• Not admitting liability; or
• Not agreeing to any settlement without the insurer’s permission.

If you prejudice your insurer’s ability to recover its losses, the insurer may have a claim against you.

Our commercial law team and litigation teams can give advice about insurance cover, making a claim against your insurer, or defending a claim made against you by an insurer. Contact our insurance law experts by email at partners@smithpartners.co.nz or by phoning 09 837 6849