Don't get caught by insurance fish-hooks

DON'T BE SILLY: Alongside the wackier exclusions - terrorism, nuclear apocalypse, foreign invasion are all covered - there are some that could easily trip up an experienced driver.
DON'T BE SILLY: Alongside the wackier exclusions - terrorism, nuclear apocalypse, foreign invasion are all covered - there are some that could easily trip up an experienced driver.

At the tender age of 16, and equipped only with a learner's licence, my brother attempted to drive mum's old Lada across a busy intersection.

With a squeal of brakes and crunch of metal, he neatly t-boned a passing car - naturally, a late-model Audi.

Teenagers Do Dumb Stuff is the story that keeps on giving.

It's in the headlines again after an Otago University study found teenagers without full driver's licences were out after their curfew and driving passengers illegally.

That caused Insurance and Savings Ombudsman (ISO) Karen Stevens to warn parents that insurance companies won't pay out if their little darlings break the rules.

As my brother found out, driving without valid insurance is like playing Russian roulette. Each time you leave the safety of your garage, you're spinning the barrel.

Writing off mum's hatchback is bad enough. Facing years of debt or even bankruptcy after smashing up someone's flashy new Beemer could ruin a good part of your life. 

The worst part is, many of us are merrily driving around with no idea that there's a bullet loaded in the chamber.

Insurance companies will decline a claim at every opportunity, and many of the fish-hooks they rely on come as a nasty surprise.

AA's policy document lists 46 "general exclusions", State's 48 and AMI's 24.

The evidence suggests no-one actually reads the fine print, so we've done it for you.

Alongside the wackier exclusions - terrorism, nuclear apocalypse, foreign invasion are all covered - there are some that could easily trip up an experienced driver.

The following five examples come from ISO case studies. The names are fictional but the scenarios are real.

1. Breaching conditions of driver's licence

Nate was pulling out at a give way sign. He failed to see another car coming from the left and it hit him.

The insurance company wouldn't pay out on his claim because he was breaching his restricted licence with a mate riding shotgun.

Nate's mum stepped in, arguing that the passenger had nothing to do with the crash, and if he'd been in the vehicle by himself, he would have been covered.

But the the ISO case manager rejected the appeal.

A search of the case studies on file turns up dozens of similar stories, and almost without fail, it's mum and dad who end up footing the bill.

"Some of them are quite shocked and very distressed when they come to us," says Stevens.

"I don't think that any of them think about the fact that their insurance cover won't actually apply."

For a restricted driver, that means carrying passengers who don't have their own full licence and driving between the hours of 10pm and 5am is a big no-no.

If you do get pinged, there is a get-out-of-jail-free card you can try. 

Under the Insurance Law Reform Act, if you can prove that the breach of conditions had nothing to do with the accident, you can still get paid.

The odds aren't good, though. In a random sample of 10 cases, nine had their claims declined because the ISO believed a qualified co-driver would have prevented the accident.

In the only case where it accepted there was no way an experienced driver could have helped, the driver died in the crash anyway.

2. Failure to ensure safety or security of the vehicle

At 2.30pm on New Year's Eve, 2011, Trevor parked up his car outside a tavern in Whangarei and went inside - supposedly to wait for his wife.

He emerged two hours later to find that his vehicle had disappeared into thin air, no doubt causing him to question the potency of the local brew.

It turned out trusting Trev had left the car unlocked, the windows down and spare keys under a mat. He said it "never crossed my mind that on a quiet ... afternoon at an open car park my vehicle could be stolen".

His insurer declined his claim, saying he had failed to take all reasonable steps to ensure the security and safety of the vehicle. The ISO agreed. 

It's an exclusion that crops up regularly, says Stevens. If you don't take steps to properly secure your car, your cover will be void.

3. Driving the vehicle offroad

Luke drove onto a beach so he could turn his vehicle around, but what looked like firm sand turned out to be a sinkhole filled with mud.

The vehicle was rescued from its muddy bath, but not before it had sustained significant water damage.

Luke's insurer relied on an exclusion for "off-roading" to decline the claim, which voids any cover when you drive on a beach or other unsealed surface.

The only exceptions are things like boat ramps, gravel parking lots, and dirt roads that lead to a house.

The real kicker is that even if you've got a monster truck with a V8 engine, giant tyres and four-wheel drive, you're still not protected if you stray from the safety of the tarseal.

4.  Vehicle driven in an unsafe or unroadworthy condition

Max was driving on the open road in heavy rain. He hit a pool of water, aquaplaned across the surface and skidded off the road.

While his car had a current Warrant of Fitness, the insurance company's assessor found that the two rear tyres didn't have enough tread.

Max knew the tyres needed replacing and had actually arranged with his garage to get them fitted the following Monday.

He told the insurer he had taken reasonable steps to make the vehicle safe, and his garage had said that "even if brand new tyres were fitted the car would still aquaplane in such surface water".

Nevertheless - his claim was declined, and the ISO case manager sided with the insurer.

The condition of tyres often leaves people in the lurch, says Stevens.

"Just because they got a warrant at the beginning doesn't mean they're not required to be replaced before the next warrant."

She concedes that it's a bit rough for non-mechanic types to be expected to know if their car is in roadworthy condition all the time, but that's the owner's responsibility.

5. Damage caused intentionally or recklessly

Tracy's son Tyler was driving her car on a slippery, icy road when he decided to pull up the handbrake and attempt to do a stylish turn.

Apparently blessed with an enquiring scientific mind, he later explained that he was "being silly and wanted to see what happened".

The car slid out of control and crashed into a power pole, simultaneously sating his curiosity and giving him an unforgettable lesson on the laws of physics. 

The police neatly summarised the cause of the accident on the Traffic Crash Report as "inexperience and driving like a fool".

The insurer declined the claim on the basis that the policy's definition of an accident did not include "damage you cause intentionally or recklessly".

Tracy didn't believe her boy's driving was reckless, but the ISO disagreed.

Practising your stunt driving skills, racing with mates, or any other sort of hi-jinks are another easy way to lose your insurance cover.

Moral of the story

Stevens has been the ISO boss for 15 years now. Over that time, insurance companies have become much better at spelling out policy conditions in plain English.

The problem is, many of us consumers still don't bother reading the pesky things.

Stevens says most people think their only obligation is to pay their premiums on time, but there's actually much more to the relationship than that. 

If you didn't get a copy of the policy document automatically, make sure you request one. 

Take 10 minutes to read and understand it - and make sure your kids do too. It is one of those boring but crucial tasks which could save a lot of future headaches.