Five common issues that lead to claims denials
When it comes to insurance payouts, the rules are pretty simple – if you have a valid claim, it will be paid. The catch is, whether or not the claim is valid under the terms and conditions of your policy. Here are five reasons why a claim will not be paid…
Not an insured event
The top reason why a claim is not paid is because the circumstances of the claim are not covered by the policy.
The PDS sets out what events are insured, and those that are not. Things policyholders often try to claim for, but which are not covered, include:
- Wear and tear – a policy may offer cover for accidental, malicious or deliberate damage, but fair wear and tear (damage caused by normal use over time) is not covered. Property owners should expect fixtures and fittings to wear (like carpets in traffic areas) and minor damage to happen (like scratches on benchtops).
- Routine maintenance and repairs – although there may be cover for urgent or emergency repairs that are the result of an insured event (e.g. a window broken during a storm), claims cannot be made to recoup the costs of routine maintenance and repairs. These are simply the costs of owning a property and are not covered by insurance.
- Broken down appliances – yes, there is cover if an electrical motor fuses, but not if an appliance simply stops working. Again, this is part and parcel of owning the appliance and is not covered by insurance.
- Cleaning – it is the tenants’ responsibility to leave the property in a clean and liveable state. If they fail to do so, you may be able to use their bond money to cover the cost of cleaning. Except for drug lab clean-ups, cleaning is not covered by insurance.
Wrong policy in place
There are different types of insurance policies to cover different letting situations. As the risks posed by the various scenarios are different, the risks covered by insurance also differ.
For example, if you have a Householders Rental policy, tenant-related risks are not covered. That means you cannot claim for loss of rent or tenant-caused damage. If you have a ShortTerm policy, you cannot claim for matters arising from a breach of the lease, such as rent default (as there shouldn’t be a lease on a short term rental). If you have a policy that only covers contents and tenant-related matters, you can’t claim for building damage. That is why it is important that you purchase the right landlord insurance policy that covers both the specific type of property (house, unit etc.) and the way it is being rented.
Policy not valid
An unpaid or lapsed policy is not a valid policy. Your policy covers insured events from the date and time noted on the invoice or insurance cover summary. This means that you cannot make a claim for something that happened before the policy was in place or after it had expired and was not renewed. For example, if your tenant was in arrears before you took out the policy, you cannot claim for those arrears because the event happened outside of the policy validity dates. The same principle applies to damage claims where the damage occurred before the policy came into effect.
Policyholder does not meet their obligations
Policy obligations are not all one sided. While the insurer has responsibilities, so too does the policyholder. And if the policyholder fails to meet those obligations, their claim can be void or the payout reduced. Key things to remember in terms of obligations are:
Disclosure – this means that you must tell the insurer about any circumstances that increase risk at the property. This includes things like the property being vacant for an extended period, renovations, mortgage foreclosure, or the premises being used for illegal purposes such as a drug den. You also need to advise if something happens at the property that may result in a liability claim being made (e.g. someone slips and hurts themselves), or if you are having to go down the eviction route with a tenant and the process is not going smoothly.
Maintaining the premises – there is a clause in practically all building policies that requires the premises to be adequately maintained. If a lack of upkeep contributes to a loss (e.g. you fail to fix broken roof tiles and the ceiling collapses because rain gets in), then the claim is unlikely to be paid in full, if at all.
Mitigating further loss – there is also a clause that requires the policyholder to act (within reason) to prevent further loss. For example, if a storm has damaged the roof, putting up a tarp, to keep more water from entering the premises and causing further damage, would be a mitigating action.
No supporting evidence
It is not that we don’t trust or believe you, but claims need to be proven. This means, you need to provide some evidence of a loss. If you have arranged for an emergency repair, you will need to provide a causation report and the tax invoice/receipt. If you are putting in a damage claim, you need to provide photos/videos of the damage. If you are making a claim for malicious damage or theft, you will need a police report. A claim for loss of rent? Copies of the lease, rent ledger and correspondence with the tenant will need to be provided. If you cannot show that you have suffered a loss, it is really hard for the insurer to approve your claim.
