Lawyer explains what it takes to get blacklisted by your insurer

By Andrew Hooker*

We live in a relatively unregulated insurance market. Unlike many other countries, insurers are almost free to insure or refuse to insure anyone they choose.

No one has a right to insurance, and the insurance industry is free to refuse your application or cancel your policy at its whim. It does not have to provide reasons or justification. 

The insurance industry has often reminded the public that insurance is not a right, it is a privilege. But what insurance companies seem to overlook is the fact that insurance is not a luxury, it is a necessity. Without insurance, most people cannot buy a house or operate a business, and would be irresponsible to use a vehicle on the road. 

So if your insurance company gets a snitch on you and cancels your insurance for whatever reason, or for that matter, without any reason, the consequences can be dire. The following examples are real live cases that have happened in New Zealand in the last few years.

Nearly lost the house

A couple made a claim from their insurance company for some property that was stolen from their daughter at school. This included some shoes and a cell phone. Their daughter had had a bad run, and actually had items stolen on two separate occasions. Misunderstanding the claim form, the mother put the date of loss as the date on which the theft was reported to the Police. 

The insurance company decided that they had lied, and declined the claim. The insurance company then cancelled all the insurance for this couple. This included their house, car and some business insurance. As is almost always the case, no other insurance company would then touch them – the database run by the Insurance Council records any claims that are declined, and as a result every insurance company refused them cover. No amount of pleading or explanations would help, the doors were slammed in their face every time they tried to get insurance – “we don’t insure anyone who has had a claim declined for fraud”.

The bank threatened to foreclose on the mortgage because there was no insurance, and they could not use their cars on the road because they had no protection.

The couple was forced to sue the insurance company through the courts for a $100 claim in order to clear their name. When faced with the proceedings, the insurance company backed down, and withdrew the allegation of deliberate false statements. 

A moment's remorse

After a stressful and major burglary, a customer of a major insurance company was being interviewed by an investigator. The investigator asked whether the alarm was on at the time.  The customer said it had been, knowing that she had not turned it on. 

Within five minutes of the investigator leaving, and before the investigator had even got back to the office, she rang him and told him that the alarm was not on, and asked him to change the information.

This should not have been a problem because there was still cover with the alarm off. 

However the insurance company latched on to this and declined the entire claim. The insurance company said that the customer had lied, and even though she had retracted it within a few minutes, and before the investigator had even reported, the entire claim was declined. The insurance company cancelled all insurance, including all business insurance and business vehicles. 

The customer had a totally clean record, no previous claims, and had made a simple mistake, that she immediately rectified. 

Again no other insurance company would touch the customer. 

A major fire 

A customer of one of New Zealand’s largest domestic insurance companies had a major fire.  During the claims process, there were a number of disagreements about what should be paid for various items, but the customer held his ground. The customer insisted on the insurance company honouring its obligations to the letter, and eventually the insurance company conceded and paid as the policy required. 

As soon as the claim was settled, the insurance company cancelled all insurance policies.  Why? Because it could. No other reason.

When the customer tried to obtain insurance elsewhere, not a single other insurance company would touch him. He had done absolutely nothing wrong, but had insisted that the insurance company honoured its promises. But when he told them that his insurance had been cancelled, no one would insure him, even though the cancellation had nothing to do with dishonesty. He remains uninsured to this day.

No legal remedy

There is no insurer of default in New Zealand. The insurance industry is entirely privatised, and by world standards, very under-regulated. It is difficult to imagine another “necessity” product in which the providers have such a privileged existence. And they stick together like a pack of wolves. What one insurer does, the others follow. People’s lives are ruined because of an allegation that is made, or worse the insurance company gets the huff with a customer who demands that his rights be respected.

Even when an insurance company accuses someone of dishonesty, the accusation itself is enough to prevent them from getting insurance anywhere else. Where else does a mere accusation have such a dramatic effect on someone? 

There is no legal remedy. The insurance industry is free to insure or refuse to insure who it chooses, and to cancel any policy it chooses. 

The consequences of these actions are extreme, and the cases in this article are real people. Perhaps it is time for regulation. But in circumstances where the government does not even seem interested in passing legislation to reform the insurance industry following recommendations from the Law Commission, it seems a faint hope that anything will be done in this area.

You have been warned. Don’t upset your insurance company. If you do, they may just cancel your insurance, and it is quite likely that you will never get insurance elsewhere. If you can’t get insurance, the bank won’t lend you money, and your assets will be unprotected. 

Insurance is not a privilege, it is an absolute necessity, and the insurance industry needs to understand that such heavy handed actions ruin the lives of the very people that pay its premiums. 

*Andrew Hooker is the Managing Director of Shine Lawyers NZ Limited practices as a specialist insurance lawyer in Albany on Auckland's North Shore. He also runs an insurance information website -www.claimshelp.co.nz