AustraliaAn insurer reduced my payout claiming my modifications voided coverage. Can they do this?
An insurer can only void coverage for modifications if the changes materially increased the risk and you failed to disclose them, or if the policy explicitly excludes such modifications — and even then, they must comply with the Insurance Contracts Act 1984.
What the Law Says
The Insurance Contracts Act 1984 (Cth) sets strict limits on when insurers can reduce or refuse payouts due to modifications — especially where disclosure obligations, fairness, and causation are concerned.
Under Australian law, insurers cannot simply void coverage or reduce a payout because you made modifications (e.g., to a car, home, or boat) unless those changes were material to the risk and you breached your duty of disclosure — and even then, remedies are limited.
Section 28 of the Insurance Contracts Act 1984 imposes a duty of utmost good faith on both parties. This means you must disclose every matter that a reasonable person would consider relevant to the insurer’s decision to accept the risk — but only before the contract is entered into or varied.
Section 54 restricts insurers from refusing a claim solely because of a breach of a policy term (e.g., a clause prohibiting modifications) unless the breach caused or contributed to the loss. If the modification had nothing to do with the incident, the insurer generally cannot reduce or deny the claim.
Section 66 allows an insurer to avoid the contract only in cases of fraud — not mere non-disclosure or unauthorised modifications — and only if the fraud was committed by the insured with intent to deceive.
Statutory TextA contract of insurance is a contract of the utmost good faith.
— Insurance Contracts Act 1984, s. 28 — Duty of utmost good faith
Statutory TextWhere the effect of a provision of a contract of insurance would be to relieve the insurer from liability… the insurer is not relieved from liability… if the breach did not contribute to the loss.
— Insurance Contracts Act 1984, s. 54 — Effect of breach of duty or condition
Statutory TextWhere a contract of insurance is avoided by reason of fraud… the insurer may recover from the insured any amount paid under the contract.
— Insurance Contracts Act 1984, s. 66 — Avoidance of contract for fraud
What to Do
Check your policy wording to see whether modifications are prohibited — and whether the clause is clear, prominent, and compliant with the Insurance Contracts Act.
Confirm whether you disclosed the modification when applying for or renewing the policy — or when asked to update your risk profile.
Ask the insurer in writing to explain exactly how the modification caused or contributed to the loss, citing s. 54 of the Insurance Contracts Act 1984.
If unsatisfied, complain to the Australian Financial Complaints Authority (AFCA) — free, independent, and binding on insurers up to $1 million.
Seek advice from a legal service or community legal centre if the insurer refuses to reconsider.
Sources
Not legal advice. This article is general information based on publicly available sources, written for educational purposes. Laws change and individual situations vary. Consult a licensed attorney in your jurisdiction before acting on anything you read here. Last reviewed: 2026-06-08.