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 some time, it’s important that you’re aware of your disclosure obligations to your insurance provider.
As of 30 June 2021, there were almost 2,500,000 businesses actively trading across Australia, so this issue potentially affects many business owners.
If you simply work from home for an employer, this issue doesn’t affect you. It only applies if you are running a business from home and have registered an ABN (Australian Business Number) for your business.
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.
From 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.
The Banking Royal Commission found 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. Your insurer should explain to you what your disclosure obligations are and what types of things you need to disclose
So, how does this look in reality? In one example, a man was told his insurance would be cancelled immediately because he had been running a food truck from home. The man 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 was running a business from home, which simply involved a stall at the end of their driveway selling eggs using an honesty box. 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 $2000 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.
If you are unsure whether your insurance policy covers you properly, or if your insurer has knocked back a claim, seek legal advice.
A lawyer 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), if you’re unhappy with your dealings with your insurer.
