Ombudsman Directs RACT Insurance to Honour Car Crash Claim Despite Undisclosed Damage

The Australian Financial Complaints Authority (AFCA) has intervened to instruct RACT Insurance to process a claim for a policyholder who failed to disclose prior damage to his four-wheel drive.

Initially, when securing the insurance over the phone, the owner described the vehicle as being in "good shape" with only minor scratches.

However, post-accident assessments by RACT revealed damage that seemed to have existed before the incident.

According to the claimant, the superficial damage to parts such as panels, bumpers, and the tailgate occurred in two separate instances only after purchasing the policy. RACT acknowledged these claims of post-policy incidents but argued that they didn't explain all the observed damage, suggesting a misrepresentation of the vehicle's condition at the time of policy commencement.

Despite recognising the policyholder's partial misrepresentation, AFCA highlighted that RACT had not definitively proven it would have declined insurance had the accurate condition been disclosed. The insurer's guidelines indicate that cars with "extensive damage" are automatically ineligible for coverage; however, those with "some damage" may still qualify. AFCA determined that the identified damage likened more to "some damage" than the "extensive damage" that would categorically void coverage.

This determination underscores the significance of transparent communication between policyholders and insurers regarding vehicle conditions. It highlights the thresholds insurance companies apply in policy evaluations and the necessity of their transparency. This decision not only affects the insured's entitlement to coverage but also serves as a key precedent for similar cases, promoting greater clarity about what constitutes significant pre-existing damage that could deny coverage.

The decision sets a vital precedent in the insurance industry, reinforcing the need for clear disclosure guidelines and policies that articulate what qualifies as unacceptable pre-existing damage. Insurers might need to revisit and possibly adjust their underwriting criteria to ensure alignment with regulatory expectations and reduce disputes. For the consumer, this case serves as a reminder of the importance of full disclosure and understanding the conditions under which their policy operates.

Published:Friday, 3rd Oct 2025
Source: Paige Estritori

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Insurance Deductible:
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