An insurer has been ordered to pay an arson claim that it denied due to the affected restaurant’s sole director failing to disclose his criminal history when the policy was incepted by his broker.

The business secured cover from QBE for a restaurant/takeaway run from a leased premises, and on August 2 last year an arson attack destroyed the contents and prevented trading.

The arsonist was caught but the insurer declined the claim, noting the director’s criminal convictions had not been disclosed.

The director took the case to the Australian Financial Complaints Authority, saying he did not deliberately omit the information and “has worked hard to rehabilitate himself”.

“The complainant says this omission should not affect payment of the insurance claim,” AFCA said.

“He further offers to pay any higher premiums applicable to the policy due to his criminal history, in exchange for payment of the claim.”

QBE argued that had the convictions been disclosed, it would not have offered insurance.

However, AFCA says the insurer could not prove precisely what questions were asked at policy inception. The broker used an electronic platform that links to the insurer’s systems, but QBE did not provide screenshots.

“The insurer indicated this information should be sought from the broker,” AFCA said.

“However, it is the insurer that has relied on non-disclosure and that must be able to demonstrate that the insured failed in its duty to disclose information to it.”

AFCA says there were two questions that might have been used, and one of them asked whether “the insured” had been convicted of a criminal offence. 

“The insured in this case was a company, which had not committed any criminal offences,” the authority said.

QBE argued that even if this question was asked, the director still had a duty to disclose, but AFCA’s ombudsman disagrees.

“I accept that the complainant may be the controlling mind of the insured company. However, the insurer also clearly contemplates that there is a difference between an insured and a director of an insured company based on the separate question types.

“The material issue is that it is unknown what precise question was put to the insured company and whether it would capture the complainant company director’s criminal history.”

AFCA says the insurer has not established that the insured failed in its duty of disclosure, and therefore it cannot deny the claim and cancel the policy.

“Within 28 days of receiving notification of the complainant’s acceptance of this determination, the insurer should reinstate the policy and complete any further investigations required to settle the claim in accordance with the policy terms and conditions.”

See the ruling here.