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Janine Starks: Watch out for car insurance pitfalls

Last updated 05:00 09/06/2017


Not telling the truth about a car accident can give your insurer cause to turn you down.


OPINION: Welcome to the winter motor vehicle insurance season. Frosts are settling on windscreens, demisters blast and road conditions slide beneath our car tyres.

Should we prang, bump or skid, we are safe in the knowledge that our insurer has our bumper. Well, most of our bumpers. A few of us end up in pot-holes and fine print road-works that stop our journey.

There's nothing like real life Kiwi examples of where it can all go wrong.

Here are my picks of 2016 from the Insurance and Financial Services Ombudsman cases. They're designed to keep your bum-warmer roaring in the 2017 chill.

READ MORE: Why you won't get your car's purchase price from your insurer

1. Contaminated fuel: Miss Hapless drives an Audi. She filled it with diesel and inadvertently added Allied Blue diesel exhaust fluid to the tank.


After a few hundred kilometres it shakes and causes $37,000 of electrical and mechanical damage. Titter, titter, surely it's insured? Some insurers cover fuel contamination but this particular policy had a very broad exclusion for mechanical and electrical damage. The claim was declined.

2. Just a little porky: One car brakes, the other crashes into him from behind. The front driver puts in a claim saying he wasn't at fault. But a witness reports he was braking sharply and traffic ahead wasn't an influence. The two drivers admit they know each other and Mr Brain-fade at the front wanted his acquaintance to pull in, to sort out a personal dispute.

He misrepresented how the accident happened and provided information that was substantially incorrect and material. Claim declined.

3. Engine failure: Mr and Mrs Cursed remove their radiator cap and forget to put it back on. The vehicle overheats, they replace the cap, but 5km later it dies. It was an accident and their policy covers "accidental loss". But the Curseds are subject to an exclusion. Failure of the engine is not covered, unless caused by collision, impact, earthquake, fire, flood, lightening, a malicious act, overturning of the vehicle, theft, illegal conversion or volcanic eruption. Lesson learned. Volcanos, yes. Radiator caps, no. Claimed declined.

4. Sum insured versus market value. A car insured for $9000 is involved in an accident. The insurer gets a market valuation and pays $7000. Another valuation shows $7300, so an extra $300 is paid. Mr. Bad Luck didn't know an insurer could pay the market value if it's lower than the sum on the policy. This detail was in the 30-page policy document. Mr Bad Luck said it wasn't sent to him. He should have requested it, because by law you must read the wording. Claim declined.

5. Wear and tear: Mr Blighted's BMW convertible had the roof slashed by a thief. His insurer paid for new upholstery. Nine months later the roof mechanism failed and he claimed again, believing the thief caused the damage. The insurer got evidence from a BMW mechanic and the upholsterer that there were problems with the sensors, circuits, water leaks, corrosion and second hard parts had been fitted previously. The damage was wear and tear. Claim declined.

6. Breach of drivers license: Mr Doomed swerved around people fighting on the road and had an accident. He was in a company car on a learner's license. The insurer refused to pay, as a fully licensed driver should have supervised him. The company tried to rely on an area of law known as Section 11 of the Insurance Law Reform Act 1977. If the breach didn't cause or contribute to an accident, the insurer can't decline your claim. In this case a more experienced driver would have acted as a second set of eyes and helped stop a collision. Claim declined.

7. Oops I forgot: Also known as non-disclosure. A 1986 Nissan Pulsar was stolen. Miss Portentous was insured, but failed to disclose she had a home contents claim declined the year before. When asked, she said no, believing they were only interested in other motor vehicle policies. Not telling the truth means the policy can be cancelled from the start date. Claim declined.

8. Section 11 success: Mr Charmed had an accident claim declined, because one of his tyres is worn, making the car unroadworthy. However under section 11 of the 1977 Insurance Law Reform Act, if the breach didn't cause or contribute to the accident, the insurer must pay up. In this case a mechanic verified that the traction control meant the tyre would not have caused the accident. Claim settled.

9. Breach of utmost good faith. Mr Misleading claimed damage to his car in a parking lot and then added in damage to the roof at a later date. It was found to be pre-existing. The duty of utmost good faith (honesty) is a common law duty and exists independently of the policy. It was found his actions were intentional. Not only was his vehicle claim declined, his home and contents policies were all terminated.

10. Modifications: A 1998 Nissan Skyline Coupe is sold for $14,000, but a stolen cheque is used. The owner claims for the car, but the insurer finds it was modified. The Trade Me listing detailed a turbo timer, apexi pod filter, a blowoff valve, neons, tinted glass and a custom exhaust.

When the car was insured Mr Jinxed answered "no" to questions on modications. This was a material non-disclosure and allowed the insurer to treat the policy as if it never existed. Claim declined.

* Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views.  They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product.  Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.

- Stuff

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