Business liability claim mistakes that lead to reduced or declined claims in Australia

Most business liability claims that go wrong in Australia fail for one of a handful of reasons: the business did not disclose an activity or past incident when it bought or renewed the policy; it notified the insurer late or not at all; it admitted liability or settled without the insurer's consent; the claim fell into an exclusion such as faulty workmanship, professional advice or contractual liability; or the limit or insured entity was wrong. Each of these is avoidable. Describe the business fully, report incidents promptly in writing, do not admit fault or promise payment, read the exclusions before you need them, and keep the policy in the right name.

This is the overview guide for the claims and sources section. Examples are illustrative patterns, not real cases.

Mistake 1: not disclosing activities, incidents or changes

For business policies, the duty of disclosure in section 21 of the Insurance Contracts Act 1984 applies at the start and at every renewal. If you fail to disclose something relevant and the failure was not fraudulent, the insurer may reduce the claim to the position it would have been in had it known, which can be nil if it would not have insured you. Typical gaps:

• an electrician who began solar installations;
• a cafe that started hosting functions with alcohol;
• a business that had a complaint letter threatening legal action and did not mention it at renewal.

See non-disclosure and business insurance claims.

Mistake 2: late notification

Policies require you to tell the insurer promptly about incidents that might lead to a claim, not just about claims. Under occurrence-based public liability, late notice can prejudice the insurer's ability to investigate, and section 54 of the Act may limit, but not always prevent, a reduction. Under claims-made policies such as professional indemnity, failing to notify circumstances before the policy ends can mean no policy responds at all. See claims-made notification and run-off.

Illustrative pattern: a landscaper's client mentions cracks in a neighbour's wall near a new retaining wall, but nothing is said to the insurer. A year later, after a change of insurer, the neighbour sues. The old insurer argues it was not told during its policy; the new insurer argues the circumstances were known before its policy began. The landscaper is caught in the middle.

Mistake 3: admitting liability or settling without consent

Almost every liability policy says you must not admit liability, make offers or settle without the insurer's written consent. Saying sorry and helping someone who is hurt is fine; saying "it was our fault, we will pay for everything" in writing can breach the policy. Paying a small claim yourself without telling the insurer can also cause problems if the claim later grows.

Mistake 4: assuming the policy covers your own work

Public liability usually pays for damage your work causes to other property, not the cost of fixing or redoing the work itself. A tiler whose waterproofing fails may be covered for water damage to the apartment below but not for retiling the bathroom. See common liability exclusions.

Mistake 5: signing contracts with wide indemnities

Head contracts and leases often contain clauses where you indemnify the other party for losses, sometimes even for losses they caused. Liability policies usually exclude liability you take on by contract beyond what the law would impose anyway. See contractual liability and indemnity clauses.

Mistake 6: the wrong insured or the wrong limit

• The policy is in the owner's name as a sole trader, but the work is done through a company set up later.
• A trust trades but the policy names only the trustee company without reference to the trust.
• The limit is $10 million but the contract requires $20 million, and the client claims breach of contract when an uninsured gap appears.

Check the insured name and ABN at every renewal.

Mistake 7: not keeping records

Insurers and courts rely on evidence. Keep incident reports, photos, cleaning and inspection logs, safe work method statements, subcontractor certificates and emails. A shop that can show a cleaning log for the hour before a slip is much better placed than one that cannot.

What to do when an incident happens

1. Help anyone who is injured and call emergency services if needed.
2. Make the area safe.
3. Record what happened: date, time, people, witnesses, photos, conditions.
4. Do not admit liability or offer payment.
5. Notify your insurer or broker in writing as soon as possible, even if no claim has been made.
6. Pass on any letter of demand or court document immediately; there are deadlines to respond.
7. Keep copies of everything you send and receive.

If your claim is declined or reduced

Ask for the decision and the reasons in writing, together with the policy provisions relied on. Make a complaint under the insurer's internal dispute resolution process. Insurers generally must give a final response within 30 calendar days. If you are not satisfied and your business qualifies as a small business, you can take the complaint to AFCA free of charge. See AFCA complaints about business insurance, and the directory of official sources for the regulators involved.

Frequently asked questions

Should I report an incident if no one has made a claim?

Yes, if it might reasonably lead to a claim. Most policies require it, and for claims-made policies it can preserve cover.

Can I apologise to an injured customer?

Yes. Expressions of sympathy or regret are generally protected under state civil liability laws and are not, by themselves, an admission of liability. Avoid stating that you are at fault or promising to pay.

Will a claim increase my premium?

It may, depending on the size, cause and your history. Do not avoid notifying an incident to protect the premium, because an un-notified claim can be declined later.

Who decides whether I am liable?

Your insurer usually takes over the defence and negotiation. If the claim is disputed, a court, or a settlement agreed by the parties, decides.

Sources

• Federal Register of Legislation — Insurance Contracts Act 1984
• AFCA — complaints and published decisions about insurance claims
• ASIC — claims handling rules and internal dispute resolution (RG 271)
• Safe Work Australia — incident notification and WHS duties