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consumer

Disputing a declined insurance claim

Key Takeaway

When an insurance claim is declined in New Zealand, consumers have rights under the Consumer Guarantees Act 1993 for services to be rendered with reasonable care and skill, and under the Fair Trading Act 1986 against misleading conduct or unfair contract terms by insurers. Consumers can challenge decisions through internal and external dispute resolution processes.

Disputing a Declined Insurance Claim in New Zealand

When an insurance claim is declined by an insurer in New Zealand, policyholders have certain rights and avenues for dispute resolution. This information outlines the legal framework provided by the Consumer Guarantees Act 1993 (CGA) and the Fair Trading Act 1986 (FTA), which protect consumers in their dealings with insurance providers.

The Consumer Guarantees Act 1993

The Consumer Guarantees Act 1993 (CGA) defines consumer rights for goods and services ordinarily acquired for personal, domestic, or household use [Source: Consumer Guarantees Act 1993, s 2(1)]. An insurance policy is considered a "service" under the CGA, meaning the insurer's actions related to providing and administering the policy, including handling a claim, are subject to these guarantees.

Key guarantees for services under the CGA relevant to insurance claims include:

  • Reasonable care and skill: The service must be carried out with reasonable care and skill [Source: Consumer Guarantees Act 1993, s 28]. This applies to how an insurer assesses and processes a claim.
  • Fitness for a particular purpose: If a consumer makes known a particular purpose for which the service is required, and the insurer represents that it is fit for that purpose, the service must be reasonably fit for that purpose [Source: Consumer Guarantees Act 1993, s 29].
  • Reasonable time: The service must be completed within a reasonable time where no specific time has been agreed upon [Source: Consumer Guarantees Act 1993, s 30].
  • Reasonable price: The consumer is not liable to pay more than a reasonable price for the service where the price has not been fixed by the contract [Source: Consumer Guarantees Act 1993, s 31].

If an insurer fails to meet one of these guarantees in relation to the service of handling a claim, consumers may have remedies. For failures that are not of a substantial character (meaning a failure that does not result in the service being unfit for its common purpose, or not achieving its primary purpose), the insurer must remedy the failure. For failures of a substantial character, consumers may cancel the service or obtain compensation for any reduction in value of the service [Source: Consumer Guarantees Act 1993, ss 32, 33, 34]. It is important to note that the CGA guarantees the service provided by the insurer, not that every claim will be paid regardless of the policy terms and conditions.

The Fair Trading Act 1986

The Fair Trading Act 1986 (FTA) prohibits misleading and deceptive conduct in trade and applies to insurance companies. This Act is crucial for disputing claims where the marketing of the policy, representations made, or the terms themselves may have been unfair or misleading.

Key provisions of the FTA relevant to insurance claims include:

  • Misleading and deceptive conduct: No person in trade shall engage in conduct that is misleading or deceptive (meaning conduct that is likely to lead a consumer into error) or is likely to mislead or deceive [Source: Fair Trading Act 1986, s 9]. This could apply to how an insurance policy was presented, what was promised about coverage, or statements made during the claim process.
  • False or misleading representations: It is unlawful to make false or misleading representations about goods or services, including their nature, characteristics, suitability for a purpose, or conditions of supply [Source: Fair Trading Act 1986, s 13]. For instance, if an insurer represented that a policy covered a certain event when it did not, this section may apply.
  • Unsubstantiated representations: A person in trade must not make a representation without reasonable grounds for making it [Source: Fair Trading Act 1986, s 12A]. This applies to claims made about policy benefits or coverage.
  • Unfair contract terms: Part 2A of the FTA addresses unfair contract terms (terms that cause a significant imbalance in the parties' rights and obligations and would cause detriment if applied or relied on) in standard form consumer contracts [Source: Fair Trading Act 1986, Part 2A]. If an insurer's policy term is found to be unfair by a court, it may be declared unenforceable. An unfair contract term is one that would cause a significant imbalance in the parties' rights and obligations arising under the contract, is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and would cause detriment to a party if it were applied or relied on [Source: Fair Trading Act 1986, s 46L].

Consumers who suffer loss or damage due to a breach of the FTA may be able to seek various remedies, including compensation [Source: Fair Trading Act 1986, s 43].

Disputing a Declined Claim

When an insurance claim is declined, policyholders generally follow a process involving:

  1. Review of the policy: Examination of the insurance policy terms and conditions, specifically the sections related to exclusions, conditions, and the claims process.
  2. Internal Complaints Process: Contacting the insurer directly to understand the reasons for the decline and lodging a formal complaint through their internal dispute resolution process. Insurers are generally required to have a complaints process.
  3. External Dispute Resolution: If the complaint is not resolved to the policyholder's satisfaction through the insurer's internal process, the matter can be referred to an independent external dispute resolution scheme. In New Zealand, this commonly includes the Financial Services Complaints Limited (FSCL) or the Insurance & Financial Services Ombudsman (IFSO) Scheme, depending on the insurer's membership. These schemes offer free and independent services to resolve disputes between consumers and financial service providers.

When to Seek Independent Legal Advice

For complex declined insurance claims, or where the application of the Consumer Guarantees Act 1993 or Fair Trading Act 1986 is unclear, seeking independent legal advice is often beneficial. A lawyer can assess the specifics of a policy and the circumstances of the decline, and advise on the most appropriate course of action. Community Law Centres also provide free legal assistance and information on a range of issues.

Key Resources