Common Reasons Why Insurance Claims are Declined: Insider Report Part 1

Business insurance is often considered an essential part of operating a small business in Australia. For many owners, insurance can offer peace of mind so that they can continue running their business without worrying about the fallout of a potential incident – whether that’s a customer slipping and injuring themselves inside a cafe, or a salon treatment gone wrong.  

However, it’s important to read the fine print of your policies before you choose to buy or renew. Just assuming your insurance covers you for every single outcome can lead to costly mistakes.  

In the first part of our insider look at insurance claims, we break down some of the most common types of business insurance and highlight what they typically don’t cover. To help paint a clearer picture, we have also included some real-world claim example scenarios where claims have been declined. 

Public Liability insurance 

Public Liability insurance covers legal fees and compensation costs if a customer, member of the public, or a supplier claims against you for injury or damage to their property as a result of your alleged negligent business activity. 

Vehicles are often excluded from Public Liability 

What many people don’t always realise is that vehicles are rarely covered as part of Public Liability insurance. People sometimes misunderstand their policy and are under the impression that because they use their car for work purposes, then it is covered by their Public Liability insurance. In the vast majority of claims, however, this is not the case.  

There are some circumstances where a vehicle exclusion does not apply. However, these are often very specific circumstances and, more often than not, the vehicle in question must be stationary at the time.  

Case study profile: Public Liability insurance claim example – Tradesperson. 

Background: The insured was driving home from their client’s site, where they had been working as a steel fixer. At the roundabout, another vehicle driving behind them struck their car on the left-hand rear side.  

The other driver’s insurance company demanded that the insured steel fixer pay for the cost of their client’s car repairs. So the insured submitted a claim under their Public Liability insurance.  

Response: Upon review, the insured’s claim was declined due to the “vehicle exclusion”.  

Specifically, the vehicle exclusion in the policy states that “Personal injury or property damage caused by or arising out of the ownership, use, possession, or control by any insured person of any vehicle: 

1. which is registered; or
2. in respect of which registration is required by virtue of any legislation relating to vehicles; or
3. in respect of which compulsory liability insurance or statutory indemnity is required by virtue of any legislation (whether or not insurance is affected).” 

Faulty workmanship 

Some types of Public Liability may cover faulty workmanship. But more often than not, this is not part of a Public Liability policy. If an insured business completes a job, and then has to redo that job again due to faulty workmanship, then it is unlikely most Public Liability insurance policies will provide cover in this instance.  

Case study: Public Liability insurance claim – Tradesperson  

Background: The insured was contracted to construct a concrete slab for a pergola at the claimant’s property. During the course of the works, cracks appeared in the concrete. Attempts were made by the tradesperson to rectify the defects. However, these were unsuccessful.  

The tradesperson’s customer lodged a claim with their insurer, seeking indemnity for the costs associated with rectifying the defective works. 

The insured tradesperson, in turn, sought a Public Liability claim to cover these costs. 

Response: After reviewing the claim and supporting evidence, the insurance provider declined the claim on the following grounds:  

1. Policy coverage triggered: 
   a) The claim was considered to trigger the property damage insuring clause under the Liability section of the policy, as there was physical damage to tangible property. 

2. Exclusion applied – Faulty Workmanship: 
   a) The insurer cited the “Faulty Workmanship” exclusion, which excludes “The cost of performing, correcting or improving any work undertaken by an insured person.” 
   b)The claim relates to correcting or improving the original concrete works performed by the insured in December 2024, which directly falls under this exclusion. 

Professional Indemnity insurance 

Professional Indemnity insurance is frequently taken out by businesses that provide specialist services or professional advice. It is designed to respond to claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice. 

Professional fees cannot be refunded 

In the case where a refund is requested because the business did not deliver the services as expected, then Professional Indemnity insurance could be used to help cover the cost of the refund. However, it’s important to note that any professional fees charged are not usually refundable.  

This means that if you are the business that must process a full refund for a client, then you would either need to retain the professional fees charged or refund them to the client out of your own pocket.  

Case study: Professional Indemnity insurance claim example – Migration Agent. 

Background: The insured was engaged by a client to arrange visa sponsorship to assist workers in migrating to Australia. These migrants were going to work for the client. 

The client alleged that delays in the preparation of the applications by the migration agent caused the application to fail.  

The client had been charged more than $47,200 worth of professional fees for the services provided by the migration agent. The client then demanded a refund for this amount.  

The migration agent, who held Professional Indemnity insurance, submitted a claim for this amount.  

Response: The claim was declined based on an exclusion in the insurance, which specifically excludes the return of any professional fees. Because the client was demanding a refund for professional fees only, the claim was declined.  

BizCover makes insurance easy for small business owners 

Whether you are renewing your insurance or purchasing insurance for the first time, it’s always important to understand what is and is not covered. 

Since 2008, BizCover has been helping Aussie small businesses quote, buy, renew and claim insurance.  

We understand that running a small business is no small task. There are always things piling up, and insurance isn’t usually top of mind for most business owners. That’s why we’re here to help.  

Jump on our website and search for different business insurance policies from some of Australia’s leading insurance providers. Plus, if there’s ever something that you’re not sure about, then our friendly team is here to help answer your questions.  

By knowing exactly what your cover includes, you can make smarter business decisions, avoid insurance gaps and choose the policies that can help support your business. 

For on the go cover, go BizCover. 

The provision of the claims examples are for illustrative purposes only and should not be seen as an indication as to how any potential claim will be assessed or accepted. Coverage for claims on the policy will be determined by the insurer, not BizCover. 

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