Pre-existing Damage: When Your Insurer Uses This Excuse to Deny Your Claim

Insurers often deny claims by arguing the damage was pre-existing rather than caused by the insured event. Under Australian law, the insurer bears the burden of proving the damage existed before the incident. If you can show the insured event (a storm, accident, or other covered peril) was the proximate cause of the damage, the claim should be paid regardless of the property's prior condition.

Key takeaways

• The insurer bears the burden of proving the damage existed before the insured event.
• If the insured event was the proximate cause of the damage, the claim should be paid regardless of prior condition.
• Counter with photos, tradesperson reports, weather data, or building inspection reports showing the property's condition before and after.
• AFCA has overturned many pre-existing damage denials where the insurer could not prove the damage predated the event.

What is "pre-existing damage"?

When you lodge an insurance claim, your insurer may respond by saying the damage was already there before the event you are claiming for. This is known as a "pre-existing damage" exclusion, and it is one of the most common reasons insurers use to reduce or deny claims entirely.

Understanding how this exclusion works, what your insurer must prove, and how you can challenge it puts you in a much stronger position to fight back.

How insurers use pre-existing damage exclusions

Pre-existing damage clauses appear in most Product Disclosure Statements (PDS). They typically state that the insurer will not cover loss or damage that existed before the insured event occurred.

In practice, this plays out in several ways. After a storm, your insurer might claim the roof damage was caused by age and wear rather than the storm itself. Following a burst pipe, they might argue the water damage was the result of long-term leaking, not a sudden event. After an accident, they might say structural cracking was already present before any impact occurred.

The problem is that many properties, especially older homes, do have some degree of wear, minor cracking, or previous repairs. Insurers sometimes use this reality to attribute all of the damage to pre-existing conditions, even when a significant insured event clearly made things worse.

What your insurer must prove

This is where many policyholders do not realise how strong their position actually is. Under Australian insurance law, the onus of proof falls on the insurer when they rely on an exclusion to deny or reduce your claim.

This means your insurer must demonstrate two things:

1. The damage existed before the insured event
2. The insured event did not cause or contribute to the damage

Simply asserting that damage looks old or pointing to general wear is not enough. The insurer needs actual evidence, typically through inspection reports, expert assessments, or photographic records, to establish that specific damage was present before your claim event.

Section 54 of the Insurance Contracts Act 1984 (Cth) also provides important protections. This section prevents insurers from refusing a claim based on certain acts or omissions of the insured where the act or omission did not cause or contribute to the loss. Courts have interpreted this provision broadly in favour of policyholders.

The "materially worse" proviso you need to know about

Here is something many policyholders overlook, and insurers rarely volunteer. Many PDS documents contain a proviso within the pre-existing damage exclusion stating that the exclusion does not apply if the insured event made the pre-existing damage materially worse.

This is a critical distinction. Even if your property had some prior damage, if the storm, flood, or other insured event significantly worsened that damage, your insurer may still be required to cover the additional damage caused by the event.

For example, if your roof had minor wear but a storm caused tiles to lift and water to enter your home, the insurer cannot simply point to the age of the roof and walk away. They would need to separate what was genuinely pre-existing from what the storm caused or worsened, and they must cover the latter.

The General Insurance Code of Practice 2020 reinforces this obligation. Paragraph 81 requires insurers, when they deny a claim or do not pay it in full, to tell you in writing which aspects of the claim they do not accept and the reasons for their decision. If your insurer has not explained how they separated pre-existing damage from event-related damage, they may not be meeting their Code obligations.

The role of assessor reports

When your insurer investigates a claim involving potential pre-existing damage, they will typically send an assessor to inspect your property. This assessor is appointed and paid by the insurer.

It is important to understand that the assessor works for the insurance company, not for you. While many assessors do thorough and fair work, their reports can sometimes fall short. Watch out for these common issues:

• Attributing damage to pre-existing causes without sufficient evidence
• Failing to consider how the insured event worsened existing conditions
• Using technical language that obscures the actual findings
• Relying on visual inspection alone when more detailed investigation is warranted

You have the right to request a copy of the assessor's report. Under the General Insurance Code of Practice, your insurer must provide you with the information they relied on to make their decision. Always request this report in writing.

How to challenge assessor findings

If you believe the assessor's conclusions are wrong or incomplete, you have several options.

Review the report carefully

Look for conclusions that are not supported by evidence. Does the report simply state that damage "appears to be pre-existing" without explaining why? Does it account for the impact of the insured event? Does it consider the "materially worse" proviso in your PDS?

Gather your own evidence

Photographs taken before the event, such as real estate listing photos, renovation records, or previous inspection reports, can help establish the condition of your property before the claim event. Photographs taken immediately after the event are equally valuable.

Get your own independent assessment

You are entitled to engage a qualified building inspector, engineer, or other relevant expert to provide their own opinion on the cause and extent of the damage. An independent report that contradicts the insurer's assessor can significantly strengthen your position, particularly if it addresses the specific points where you disagree with the insurer's findings.

When choosing an independent assessor, look for someone with relevant qualifications and experience, who is not connected to any insurance company, and who can provide a detailed written report suitable for use in a dispute.

Your right to dispute the decision

If your insurer denies your claim based on pre-existing damage and you believe the decision is wrong, you have a clear path to challenge it.

Start with your insurer's Internal Dispute Resolution (IDR) process. Put your complaint in writing, clearly explaining why you disagree with the decision and providing any supporting evidence. Your insurer must respond within 30 calendar days.

If the IDR process does not resolve your complaint, you can escalate to the Australian Financial Complaints Authority (AFCA). AFCA is a free, independent dispute resolution service that can make binding decisions on insurance disputes. AFCA will consider the evidence from both sides and can overturn an insurer's decision if it finds the insurer has not met its obligations.

When lodging an AFCA complaint, focus on the key question: has the insurer proven, with adequate evidence, that the damage was pre-existing and not caused or worsened by the insured event? If they have not, the exclusion should not apply.

How The Fair Claims Co can help

Challenging a pre-existing damage denial can feel overwhelming, especially when you are dealing with assessor reports, policy wording, and dispute processes at the same time. The Fair Claims Co specialises in preparing professional dispute documents and AFCA submissions that clearly present your case, address the insurer's reasoning, and reference the policy terms and legal obligations that support your position.

If your claim has been denied on pre-existing damage grounds, we can help you put together a strong, well-structured response that holds your insurer to the standard the law requires.

For help gathering the right documentation to counter a pre-existing damage denial, see our guide on what evidence you need to dispute a denied claim. If you need to provide a statutory declaration, our guide to writing a stat dec for insurance covers the process.