If you run a business from home, there’s a possibility that your home and contents insurance could be void. If you have recently started up a ‘side hustle’ or even if you’ve been running a business for a long time, it’s important that you’re aware of your disclosure obligations to your insurance provider.
As at 30 June 2021, there were almost 2,500,000 businesses actively trading across Australia, so this issue potentially affects a lot of people.
Do you run your business from home?
This article applies if you are running a business from home and have registered an ABN (Australian Business Number) for your business. If you simply work from home for an employer, this issue doesn’t affect you.
If your ABN is registered to your home address, then you need to let your home and contents insurer know. Running a business can be classed as a ‘risk’ in your insurer’s eyes, which usually means higher premiums. If you don’t disclose it, though, you could risk voiding your insurance policy altogether.
What do you have to disclose to your insurer?
As of 5 October 2021, people taking out insurance policies have a duty to ‘take reasonable care not to make a misrepresentation’. Prior to this, if you took out insurance you had to disclose ‘every matter’ that a reasonable person would expect to be relevant.
Royal Commissioner Kenneth Hayne says the duty of disclosure, which is set out in the Insurance Contracts Act 1984, doesn’t require an individual to guess what information might be important to their insurer. Instead, the insurer needs to ask questions to elicit the information that it requires.
Essentially this means that when you take out insurance, you don’t have an obligation to try to think of every matter that might be relevant to your insurer, but you do need to take reasonable care to answer all the questions they ask you truthfully.
The recent law change raises an argument about whether individuals are under an obligation to volunteer information to their insurers if they aren’t specifically asked about it. Your insurer should explain to you what your disclosure obligations are and what types of things you need to disclose.
This means there are question marks over whether you need to disclose that you’re running a business from home if your insurer doesn’t ask you this question.
Real life examples
The ABC has reported that several people have approached them about their insurance policies being immediately cancelled because they run a business from home.
For example, one man was told his insurance would be cancelled immediately because he had been running a food truck from home. The insured said he never tried to hide his food truck and he even had separate business insurance for it, but it never occurred to him to mention it to his home and contents insurer.
Another couple were running a business from home, which simply involved a stall at the end of their driveway selling eggs using an honesty system to take payment. They made about $60 – $70 per week from the eggs. In late 2021, they had a house fire and tried to claim insurance (for which they had been paying $2,000 per year for five years) and were told that because they ran a business on the property, their insurer would not cover them. Their insurer has said that one of the questions the couple were asked when they took out the insurance was whether they ran a business from home.
Where can you get assistance?
If you are unsure whether your insurance policy covers you properly, of if your insurer has knocked back a claim, don’t hesitate to get in contact with Lynn & Brown Lawyers.
We have a team of lawyers who can assist you to review your policy terms and conditions, negotiate with your insurer or even lodge a complaint with the Australian Financial Complaints Authority (the complaint body that resolves disputed insurance claims).
About the authors: This article has been co-authored by Chelsea McNeill and Steven Brown. Chelsea is a lawyer that graduated from Murdoch University. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
