Australia: Indemnity assessment checklist - will your insurance claim pass the threshold?

In brief - Insurers follow an established procedure in assessing claims

While every claim made will require its own specific considerations, some basic steps will be on every insurer's checklist in assessing the legitimacy of claims received. The list below provides an insight into the procedure followed by insurers in assessing the validity of the claims and provides guidance when making an assessment of the likelihood of any pending claim getting the seal of approval.

Step 1: Who is the claimant?

On receipt of any insurance claim, the first step on an insurer's checklist will be to identify the claimant clearly in order to determine whether or not the person or entity claiming on the insurance policy is actually an insured party.

Historically, it was possible to prevent third parties who were not a party to an insurance contract from benefiting under the cover provided. (See Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70.)

However, the introduction of section 48 of the Insurance Contracts Act 1984 (as amended) (the Act) changed this position. (All references to the Insurance Contracts Act 1984 will be made in accordance with the changes contained in the Insurance Contracts Amendment Bill 2013 which was passed by the Australian Senate on 20 June 2013.) The section was designed so as to negate such third party disentitlement.

Pursuant to that section, a third party beneficiary under a contract of general insurance has a right to recover from an insurer (in accordance with the contract in place) the amount of any loss suffered by that third party beneficiary, even where he or she is not a party to the contract.

The section also extends obligations owed by an insured under the contract to the third party beneficiary. (See section 48(2), Insurance Contracts Act 1984, as amended.) Furthermore, the same defences to an action under the section are available to the insurer that would be available in any action by the insured.

The amendment bill has introduced the addition of defences including (but not limited to) the conduct of the insured, regardless of whether such conduct occurred before or after the contract was entered into. (See Section 48(3), Insurance Contracts Act 1984, as amended.)

Step 2: Is the insurance policy current?

Reference to the relevant schedule or certificate of insurance will provide guidance as to the period of insurance applicable to your claim. First it will be necessary to determine whether you are dealing with a "claims made and notified" or "event based" policy. The occurrence which gives rise to the indemnity will be a key indicator in establishing which type you are dealing with.

Under a claims made and notified policy, an insured must notify his or her insurer during the period of insurance of circumstances which may give rise to a claim. Subject to section 40 of the Act, provided sufficient notice is given by the insured, the question will then be whether the policy was in fact current at the time the insurer was notified of the circumstances giving rise to the claim.

Where the answer is yes and where appropriate notice is given, coverage will apply. Professional indemnity policies provide a good example of a claims made policy.

Event based policies provide coverage for a particular event or occurrence which takes place during the period of insurance. The occurrence of a loss or damage (or an incident which triggers a loss or damage) are examples of events that might trigger the policy.

An example of an event based policy would be a property damage policy. For claims made under an event based policy, the question to ask is whether the policy was current at the time the event occurred.

Step 3: Is this an insured event?

In determining whether an "insured event" has occurred, close scrutiny of the insurance contract, or policy terms and conditions, will be required. The onus of demonstrating that the claim does fall within the coverage provided lies with the insured, while the responsibility of determining whether any claim constitutes an insured event rests with the insurer.

Although it may feel like a tedious task, the only thing to do is to scrutinise the policy terms and conditions closely and apply them to the facts at hand.

Step 4: Do any policy exclusions apply?

While exclusion clauses can be an extremely useful tool to the insurer, such clauses are limited by section 54 of the Act and are strictly construed by the courts.

The language used in their drafting must be clear, plain and unambiguous. Where a clause can be said to meet each of these requirements, it will be for the insurer to demonstrate that the exclusion clause applies and has in fact been triggered.

Again, a close check of the policy terms and conditions should provide guidance as to whether an exclusion clause has been triggered.

Step 5: Other considerations which may disallow the claim

Where an exclusion clause fails to trigger or where none exists, an insured may still be disentitled from claiming under his or her policy.

Some questions considered by insurers are set down by legislation and it is useful to bear these in mind when assessing the efficacy of any insurance claim. These include:

  • Has there been a breach of the duty of good faith? Section 13 of the Act implies into every insurance contract the "duty of good faith". Each party must act towards the other party with the utmost good faith. Pursuant to the additions made to the section by the 2013 amendment bill, a breach of duty of good faith will now constitute a breach of the requirements of the Act.
  • Have you made full and proper disclosure? Pursuant to section 21 of the Act, an insured has a duty to disclose to the insurer (before entering into the contract) every matter that is known to the insured, which a reasonable person could be expected to know to be a matter relevant to the insurer in deciding whether to accept the risk. The amendment bill has introduced factors to be considered in assessing such disclosure, namely the nature and extent of the insurance cover and the class of person ordinarily expected to apply for such insurance. (The amendment will only apply to contracts entered into after the commencement of the new legislation. Further change to the section will commence 30 months after the date of Royal Assent, when section 21A will allow the insurer to ask the insured to answer specific questions relevant to its decision. Section 21B extends disclosure requirements to insurance contract renewals.)
  • Is the claim genuine? According to section 56, where a claim is made under a contract of insurance by a person who is not the insured under that contract and that claim is made fraudulently, the insurer (although unable to avoid the contract) may refuse payment of the claim.

Non-legislative considerations include:

  • Do you hold "other insurance"? Whether or not an insured holds other insurance (i.e. an entitlement to indemnity from two or more insurance providers in respect of the same subject matter) will be investigated by an insurer. Often, an insurance contract will include a clause aimed at limiting an insurer's responsibility where such dual policy coverage arises. However, the provisions of section 45 of the Act are relevant - pursuant to subsection (1), such clauses may be void. (Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first-mentioned contract.) Where legitimate dual coverage arises, section 76 of the Act allows an insured to claim against whichever insurer he or she elects and to recover from that insurer the amount of his or her loss (subject to the maximum sum insured).
  • Has the insured event contributed to the loss? Where the insured event could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, an insurer may refuse to pay all or part of the claim.
  • Has the insured event been tainted by illegality? Many insurance contracts will contain a clause that provides that an insurer may refuse to pay a claim where an insured event is tainted by illegality.
  • Does a right of subrogation exist? An insurer will usually investigate whether a recovery action exists whereby the insurer can step into the shoes of an insured and proceed with a claim against the party responsible for the loss. In this instance, the claim will usually be paid on the proviso that the insured will assist the insurer in recovering from the third party.

The efficacy of the claim (or lack thereof) has been determined - what next?

Where a claim has been granted indemnity/cover, it will be necessary to measure the loss. Depending on the type of claim at hand, various different factors will need to be determined by the insurer in conducting calculations. Notwithstanding this, the following points will usually be considered in most cases:

  • Does an excess or deductible apply?
  • Are dual policies in place?
  • Has the insured sum been correctly calculated or over or under insured?
  • What is the limit of liability under the policy? Will the claim fit within it or has the limit been eroded by other claims?
  • Are there any applicable sub-limits?
  • Does a policy reinstatement apply?

Where indemnity cannot be resolved, seeking legal advice at an early stage can help to keep costs to a minimum, by obtaining a clear view on the complexity of the matter and an accurate assessment on the likelihood of succeeding with an insurance claim. An insurance lawyer will be able to assist in ascertaining whether a strong claim on the part of the insured (or conversely, a reliable insurer defence) exists and can assist with communication between the parties, or where appropriate, settlement negotiations.

Further information regarding the questions considered by insurers in assessing the claims they receive can be found in the Insurance Council of Australia General Code of Practice, which sets out the way in which consumers can expect their insurer to behave and the recourse that policyholders have in disputes. The Code includes timeframes for the notification of decisions made on claims received (10 days where no investigation is required) and standards applicable where claims investigations apply.

Aoife Gallagher-Watson Key Contact: Cathryn Prowse
Insurance and reinsurance
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.