What to Do When Your Insurance Claim Is Denied in Australia

Having a property damage claim denied is a stressful experience — but a denial is not necessarily final. Australian law gives policyholders a set of procedural rights that apply when an insurer refuses a claim, and understanding those rights is the first step to challenging a denial effectively.

• Right to written reasons (General Insurance Code of Practice, clause 77): When an insurer refuses a claim, reduces a claim, or refuses to provide a particular remedy, they must give you written reasons for their decision. The reasons must be specific and must reference the relevant policy terms, exclusions, or legislative provisions that support the decision. A vague or generic refusal without specific reasons is itself a breach of the Code that can be raised in a dispute.
• Right to Internal Dispute Resolution (IDR): You have the right to formally dispute any claim decision through your insurer's IDR process. Under the General Insurance Code of Practice, your insurer must provide a final IDR response within 30 calendar days of receiving your complaint. The IDR process is free and is a required step before escalating to AFCA.
• Right to escalate to AFCA: If you are not satisfied with the IDR outcome, you can lodge a complaint with the Australian Financial Complaints Authority (AFCA). AFCA is free for complainants and can make binding decisions on the insurer up to $1,085,000 for individual property claims.
• Right to obtain an independent assessment: You are not required to accept your insurer's assessment of the damage or its value. You can commission your own independent assessment from a qualified restoration contractor or building professional.

Insurers rely on a limited number of grounds to deny property damage claims. Understanding how each ground works — and where it can be challenged — gives you a clearer picture of whether to pursue a dispute.

Wear and Tear / Gradual Deterioration

Most home and property policies exclude damage caused by wear and tear, gradual deterioration, or lack of maintenance. Insurers apply this exclusion when they argue that the damage was a pre-existing or progressive condition rather than a sudden, defined event.

How to challenge it: The exclusion typically applies only where the wear and tear is the proximate cause of the loss — not merely a contributing factor. Where a sudden event (a storm, a burst pipe, a fire) causes damage to a building that already had some pre-existing deterioration, the exclusion may not apply to the entire claim. AFCA has found in numerous determinations that insurers incorrectly applied the wear and tear exclusion to damage that was principally caused by a covered event. An independent contractor assessment that identifies the specific causal mechanism of the damage is valuable evidence in this type of dispute.

Pre-Existing Condition

The pre-existing condition exclusion is used where the insurer argues that the damage existed before the policy was taken out, or before the incident that triggered the claim.

How to challenge it: The insurer carries the burden of demonstrating that the condition pre-existed the policy or the covered event. If the insurer is relying on a building or engineering report to establish this, you are entitled to obtain your own independent report. Where there is conflicting expert evidence, AFCA will weigh the evidence and is not required to simply prefer the insurer's expert. Ask your insurer specifically what evidence they are relying on to establish the pre-existing condition.

Non-Disclosure

Insurers can refuse or reduce a claim where they argue the policyholder failed to disclose a material fact at the time the policy was taken out or renewed. However, the Insurance Contracts Act 1984 (Cth) places significant limits on an insurer's ability to use non-disclosure as a ground to refuse a claim.

How to challenge it: Under the Act, the insurer can only reduce or refuse a claim for non-disclosure to the extent that it was actually prejudiced by the non-disclosure. If the undisclosed information would not have affected the insurer's decision to offer coverage or would only have resulted in a higher premium, the insurer cannot refuse the entire claim — it can only reduce the claim amount proportionally. If you believe the insurer has applied the non-disclosure provisions incorrectly, this is a strong ground for an IDR complaint followed by AFCA escalation.

Section 54 of the Insurance Contracts Act 1984 (Cth) is one of the most important protections for policyholders in Australian insurance law. It limits an insurer's ability to refuse a claim based on an act or omission by the insured that occurred after the policy was entered into.

The core principle of section 54 is that an insurer cannot refuse to pay a claim solely because of something the policyholder did or failed to do during the policy period, unless the insurer can demonstrate that the act or omission actually caused or contributed to the loss. Where the act or omission did not contribute to the loss, the insurer must pay the claim in full.

Common situations where section 54 is relevant include:

• Late notification of a claim: If you notified your insurer of a claim later than the policy required, the insurer cannot refuse the claim entirely under section 54 unless it can show the delay actually caused it prejudice (for example, it was unable to investigate the loss because of the delay). Delay alone is not a ground to refuse.
• Breach of a policy condition: Where you have breached a policy condition (for example, a maintenance obligation or a requirement to use authorised repairers), the insurer cannot refuse the claim entirely unless the breach caused or contributed to the loss. If the breach was unrelated to the cause of the damage, section 54 protects you.
• Failure to protect damaged property after an event: If you failed to take immediate steps to minimise loss after an event (sometimes called the 'duty to mitigate'), the insurer can only reduce the claim to the extent that the failure to mitigate actually increased the loss — not refuse the entire claim.

If your insurer has refused your claim citing something you did or failed to do after the policy was entered into, check whether section 54 applies. AFCA is familiar with section 54 claims and has a substantial body of decisions applying this provision.

This guide provides general information only and does not constitute legal advice. Section 54 disputes can involve complex legal analysis — consider consulting a lawyer if your claim involves a large amount.

Your insurer's Internal Dispute Resolution process is your first formal opportunity to challenge a denial. Using it effectively increases the likelihood of resolution without escalating to AFCA.

• Lodge in writing: Send your IDR complaint by email or registered post and keep copies. Address it specifically to the insurer's complaints team or customer relations department — not to your claims officer.
• Be specific about why the decision was wrong: Reference the specific policy terms, exclusions, or legal provisions you disagree with. Quote the clause number from your Product Disclosure Statement (PDS). Vague complaints that express general dissatisfaction are harder to resolve than specific, reasoned objections.
• Attach all supporting evidence: Include photographs, your independent assessment (if obtained), your own repair quotes, weather bureau data (if relevant to the cause of loss), and any prior correspondence. The IDR officer reviewing your complaint needs evidence, not just your account of what happened.
• State the outcome you want: Be explicit about what you are asking for — full payment of the claim, a revised scope, an independent assessment, or a specific remedy. IDR officers respond better to a clear ask than to an open-ended expression of grievance.
• Note the 30-day clock: From the date your insurer receives your IDR complaint, they have 30 calendar days to respond. If they do not, you can go to AFCA immediately without waiting for a response.

Where your insurer's reason for denial or reduction is based on their assessment of the cause or extent of the damage — rather than a legal or policy interpretation question — an independent assessment is one of the most effective tools available to you.

An independent assessment from a qualified restoration contractor or building professional serves several purposes in a dispute:

• It provides an objective, documented view of the cause and extent of the damage — which may directly contradict the insurer's assessor's findings.
• It establishes an independent cost of repair, which is particularly useful in scope disputes where the insurer's repair offer is lower than the actual cost to restore the property.
• It provides credible expert evidence for AFCA — AFCA considers independent contractor assessments alongside insurer assessments when deciding disputes.
• It gives you a factual basis beyond your own account of the damage, which is important because AFCA and IDR officers are trained to look for corroborating evidence.

The Disaster Recovery platform connects property owners with vetted, IICRC-certified restoration contractors who provide professional, itemised scope of works assessments. These assessments document the damage, its likely cause, the restoration methodology required, and the cost — in a format that is understood by insurers and AFCA.

Note: An independent contractor assessment is not the same as a legal expert report. If your dispute involves complex legal questions — particularly about section 54, policy interpretation, or large sums — consider also obtaining advice from a lawyer or a public loss assessor who specialises in property insurance claims.

If your IDR complaint does not resolve the dispute, your next step is to lodge a complaint with the Australian Financial Complaints Authority (AFCA). AFCA is the external dispute resolution scheme for financial services in Australia, including general insurance. It is free for complainants and can make binding decisions on insurers.

To lodge with AFCA following a claim denial:

• Lodge online at afca.org.au — include your policy number, claim number, the insurer's IDR response, and all supporting documents.
• Describe the dispute specifically — reference the exclusion or denial ground the insurer relied on and explain why you believe it was incorrectly applied.
• Attach your independent assessment if you have obtained one.
• State the outcome you want — AFCA can order payment, a revised scope, interest on delayed payments, or compensation for non-financial loss up to $5,500.

For a detailed guide to the AFCA process — including the stages of review, what AFCA can order, and timeframes — see our AFCA Complaint Guide.

This guide provides general information only and does not constitute legal advice. If your claim involves a large sum or complex legal issues, consider consulting a lawyer who specialises in insurance disputes.