Exclusion clauses in insurance policies: What can be excluded?

by The FindLaw Team

Taking out an insurance policy ensures that your personal property is covered, and when we’re talking about major property such as motor vehicles for example, insurance cover is essential. However, one aspect of insurance policies that some people fail to consider until it’s too late, is exclusion clauses within the policies. Common exclusions can include driving a car that is not roadworthy, resulting in an accident, or operating a vehicle with excessive blood alcohol in the system, just to name two.

For a person taking out an insurance policy, it’s important that you understand what the restrictions are in the policy, along with your obligations, and that of the insurer.

The obligations of insurers

Before a contractual relationship is entered into with an insurer, the insurer has a duty to disclose the restrictions in relation to the policy. The types of contracts that are covered include: home and contents; comprehensive car insurance; sickness and accident insurance; consumer credit; and travel.

Failure on the part of the insurer to disclose the restrictions of the policy, may result in the contract being instead set by legislation, as outlined s 35 of the Insurance Contracts Act 1984 (Cth) (the Act). Contracts set by legislation can sometimes result in more generous terms than the ones set by the insurance company. Although with that being said, s 35(1) of the Act does state that a person cannot make a claim for payment greater than the insurer’s contract.

If a dispute arises, s 35(2) of the Act places the onus on the insurer to demonstrate that they did inform the person the effect of the contract being entered into, and the restrictions placed on the policy.

Can insurers always rely on exclusion clauses to reject claims?

Insurers cannot reject all claims automatically because of an exclusion clause. For example, under s 37 of the Road Transport (Safety and Traffic Management) Act 1999 (NSW): “Evidence of breath test, breath analysis, oral fluid test, oral fluid analysis or blood or urine analysis and related facts not admissible in insurance cases to prove intoxication or drug use”.  If an insurer wishes to reject a claim based on a person’s breath analysis, they may have to use other means to show that a person’s claim should be refused in New South Wales.

Exclusion clauses are often applied in instances where the loss or damage was due to the person’s conduct. However, s 54 of the Act states, that if the person is able to prove that there is no connection between their conduct and that of the loss or damage, then the insurance company cannot make a refusal to pay out on the policy.

Exclusion clauses and pre-existing conditions

Sections 46 and 47 of the Act states that insurers cannot rely on exclusion clauses for a pre-existing health condition or disability if during the period of when the policy was entered into (or during the renewal period), the person was unaware of the condition or disability, and a reasonable person in their position would not have been aware of the condition.


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