Fraudulent Public Liability Claims: How Insurers Investigate and What Businesses Should Know

If you run a small business in Australia—whether a café in Melbourne, a cleaning service in Sydney, or a trades business in Brisbane—the risk of a public liability claim is a constant companion. Most claims are legitimate: a customer slips on a wet floor, a visitor trips over an uneven pavement, or a client’s property is damaged during a service. But a growing concern for insurers and business owners alike is the fraudulent or exaggerated claim. Under the Insurance Contracts Act 1984 (Cth), particularly section 13, both you and your insurer owe each other a duty of utmost good faith. When a claimant breaches that duty by fabricating or inflating an injury, the consequences can be severe—for them, and potentially for your premium and reputation if you don’t know how to respond.

This article explains how insurers investigate suspicious public liability claims, what you should do if you suspect fraud, and how to protect your business from becoming a target. By understanding the process, you can act decisively and lawfully when faced with a claim that just doesn’t add up.

The Scale of Fraudulent Claims in Australia

Fraudulent public liability claims are not a fringe issue. In 2026, the Insurance Council of Australia estimates that fraudulent and exaggerated claims across all general insurance lines cost the industry approximately $2.5 billion annually. For public liability insurance specifically, fraud accounts for an estimated 8–12% of all claims, with the majority being “opportunistic” fraud—where a genuine incident is exaggerated—rather than premeditated fabrication.

Small businesses are particularly vulnerable. Claims against operators in retail, hospitality, and trades are more common, and the relatively low value of many public liability claims (often between $5,000 and $50,000) can make them attractive targets for opportunistic fraudsters. Premiums for public liability insurance in Australia now range from approximately $400 to $2,000 per year for most small businesses, depending on industry, turnover, and claims history. Fraudulent claims drive up these costs for everyone, as insurers factor in the cost of investigation and litigation.

How Insurers Detect Suspicious Claims

Insurers use a combination of human expertise, data analytics, and increasingly, artificial intelligence to identify red flags. Understanding these mechanisms can help you recognise when a claim might be fraudulent—and what to do about it.

Red Flags in Claim Behaviour

Experienced claims handlers look for patterns that deviate from the norm. Common indicators include:

• Delayed reporting: The claimant reports an incident weeks or months after it allegedly occurred, with no plausible explanation.
• Inconsistent accounts: The claimant’s story changes over time, or conflicts with witness statements or CCTV footage.
• Excessive medical treatment: The claimant seeks treatment far beyond what a typical injury would require, often from multiple providers.
• Known “claimants”: The same individual has made claims against other businesses in the past, or has a history of litigation.
• Unusually high quantum: The claimed amount is disproportionate to the alleged injury or damage.
• Reluctance to provide evidence: The claimant refuses to sign medical authorisations, provide photos, or attend independent medical examinations.

Data Analytics and AI

Insurers now use sophisticated data-matching systems to cross-reference claims against their own databases and industry-wide registers. For example, the Insurance Reference Service (IRS) allows insurers to share information about suspicious claims and claimants. In 2026, over 90% of Australian general insurers participate in this system.

AI tools analyse claim details—such as the time of day, location, injury type, and claimant background—against historical data to flag anomalies. A claim for a “slip and fall” at a café at 3pm on a Tuesday, when foot traffic is low, might trigger a review if the claimant has a history of similar claims.

Social Media and Open-Source Intelligence (OSINT)

Insurers increasingly monitor publicly available social media accounts for evidence that contradicts a claim. A claimant alleging a debilitating back injury who posts photos of themselves weightlifting or playing sport is a classic red flag. In a 2025 determination by the Australian Financial Complaints Authority (AFCA), a claim was reduced by 60% after the insurer produced social media posts showing the claimant engaged in physical activity inconsistent with their alleged injuries.

Surveillance

For higher-value claims, insurers may engage private investigators to conduct surveillance. This is common for claims involving ongoing pain or disability. Surveillance footage showing a claimant walking unaided, lifting objects, or engaging in physical work can be powerful evidence in court or at mediation.

The Investigation Process: Step by Step

When an insurer suspects fraud, they follow a structured process. As a business owner, you should be aware of this process so you can cooperate effectively and protect your position.

Initial Notification and Preservation of Evidence

As soon as a claim is notified, the insurer will ask you to preserve all relevant evidence. This includes:

• CCTV footage (do not overwrite or delete)
• Incident reports and witness statements
• Maintenance records (e.g., cleaning logs, repair records)
• Photographs of the scene
• Any correspondence with the claimant

If you fail to preserve evidence, the insurer may deny coverage for the claim, or a court may draw an adverse inference against you.

Preliminary Assessment

The claims handler reviews the claim against the red flags above. If fraud is suspected, they escalate the matter to a specialist investigations unit. At this stage, the insurer will typically:

• Request medical records and authorisations from the claimant
• Conduct background checks via the IRS
• Review the claimant’s social media
• Interview witnesses

Formal Investigation

If the preliminary assessment supports suspicion, the insurer commissions a formal investigation. This may involve:

• Surveillance: Usually for 3–7 days, but can be longer for complex cases.
• Independent medical examination (IME): A specialist doctor examines the claimant to assess whether their alleged injuries are consistent with the claimed mechanism of injury.
• Expert reports: Engineers, accident reconstruction specialists, or occupational therapists may be engaged.
• Forensic accounting: If the claim includes economic loss (e.g., lost wages), a forensic accountant may review the claimant’s tax returns, bank statements, and employment history.

Decision and Communication

Once the investigation is complete, the insurer decides whether to accept, deny, or reduce the claim. They must communicate their decision in writing, with reasons. If the claim is denied on the basis of fraud, the insurer will typically refer the matter to law enforcement (usually the police or the Australian Securities and Investments Commission, ASIC).

Legal Framework: What the Law Says About Fraudulent Claims

The legal landscape governing fraudulent claims in Australia is complex, with both Commonwealth and state legislation playing a role.

The Insurance Contracts Act 1984 (Cth)

Section 56 of the Insurance Contracts Act 1984 (Cth) is the key provision. It states that if a claimant makes a fraudulent claim under an insurance policy, the insurer is not liable for that claim. Additionally, the insurer may avoid the entire contract if the fraud is serious enough—meaning they can cancel the policy and refuse to pay any claims, even legitimate ones, that arise after the fraud is discovered.

Importantly, section 56 applies to the claimant, not just the insured. If your customer makes a fraudulent claim, the insurer can deny coverage for that claim. However, if you, as the insured, are involved in or aware of the fraud, the consequences are far more severe: the insurer may avoid the policy entirely, leaving you uninsured for all future claims.

Civil Liability Acts (State and Territory)

Each state and territory has its own Civil Liability Act (e.g., Civil Liability Act 2002 (NSW), Civil Liability Act 2003 (Qld), Wrongs Act 1958 (Vic)). These acts govern the assessment of damages in personal injury claims. They do not specifically address fraud, but they impose a duty on claimants to mitigate their loss. If a claimant exaggerates their injury, a court can reduce their damages accordingly.

Work Health and Safety (WHS) Acts

State WHS Acts (e.g., Work Health and Safety Act 2011 (NSW), Occupational Health and Safety Act 2004 (Vic)) impose duties on businesses to ensure the health and safety of workers and others. While not directly about fraud, these acts require you to maintain accurate incident records. Falsifying records—whether by you or a claimant—can lead to prosecution.

Criminal Consequences

Fraudulent insurance claims are a criminal offence under state Crimes Acts (e.g., Crimes Act 1900 (NSW), section 192E; Crimes Act 1958 (Vic), section 81). Penalties can include imprisonment for up to 10 years. In practice, insurers refer matters to police only in clear cases of premeditated fraud, but the threat of criminal prosecution is a powerful deterrent.

What Businesses Should Do When They Suspect Fraud

If you believe a claim against your business is fraudulent, here is a step-by-step guide to protect yourself and your insurer.

Do Not Confront the Claimant Directly

Confronting a claimant with accusations of fraud can backfire. They may become hostile, escalate their claim, or make a complaint to the Australian Competition and Consumer Commission (ACCC) or your industry regulator. Instead, document your concerns and report them to your insurer.

Preserve All Evidence

As noted above, preservation is critical. If you have CCTV footage, save a copy immediately. Do not edit or delete it. If you have maintenance logs, keep them. If witnesses have given statements, ask them to write down what they saw while it is fresh in their minds.

Report Your Concerns to Your Insurer

Contact your insurer’s claims department as soon as possible. Provide them with a clear, factual account of why you believe the claim is fraudulent. Include any evidence you have, such as:

• CCTV footage showing the incident did not occur as described
• Witness statements contradicting the claimant’s version
• Photos showing the area was safe at the time of the alleged incident
• Records showing the claimant has made similar claims elsewhere

Your insurer will then decide whether to investigate further.

Cooperate with the Investigation

If your insurer commissions an investigation, cooperate fully. Provide access to your premises, staff, and records. Do not obstruct or delay the investigator. If you are unsure about your obligations, ask your insurer for guidance.

Consider Legal Advice

If the claim is large or complex, consider engaging a solicitor who specialises in insurance law. They can advise you on your rights and obligations, and represent you in any mediation or court proceedings.

How to Protect Your Business from Fraudulent Claims

Prevention is always better than cure. Here are practical steps to reduce the risk of being targeted by a fraudulent claim.

Maintain Robust Incident Reporting

Implement a clear incident reporting procedure. Train your staff to:

• Record every incident, no matter how minor
• Take photographs of the scene immediately
• Obtain witness details and statements
• Complete a standard incident report form

This documentation can be invaluable if a claim later emerges.

Install and Maintain CCTV

CCTV is one of the most effective deterrents against fraudulent claims. Ensure cameras cover all public areas, including entrances, exits, and high-traffic zones. Keep footage for at least 90 days (longer if your insurer requires it). Regularly test the system to ensure it is working.

Conduct Regular Risk Assessments

Identify and address hazards before they cause injury. Keep a log of your risk assessments and any actions taken. This demonstrates your commitment to safety and can help defend against claims of negligence.

Train Staff on Fraud Awareness

Educate your staff about the signs of fraudulent claims. Encourage them to report any suspicious behaviour, such as a customer “staging” a fall or exaggerating a minor incident.

Review Your Insurance Policy

Understand the terms of your public liability policy. Some policies, particularly those offered through comparison platforms like BizCover, include fraud prevention resources and dedicated claims teams that can help you navigate suspicious claims. Knowing your coverage limits and exclusions will help you respond effectively.

The Role of AFCA and State Tribunals

If a claim is disputed, the claimant may take the matter to the Australian Financial Complaints Authority (AFCA) or a state-based tribunal (e.g., NSW Civil and Administrative Tribunal, Queensland Civil and Administrative Tribunal). These bodies can review the insurer’s decision and, if appropriate, order compensation.

AFCA determinations are not binding on the parties, but they are highly influential. In 2025, AFCA upheld an insurer’s decision to deny a claim where the claimant had provided inconsistent accounts and refused to attend an IME. The determination emphasised that the claimant’s failure to cooperate amounted to a breach of the duty of utmost good faith.

State tribunals have similar powers. In a 2024 Queensland tribunal case, a claim was reduced by 40% after the tribunal found the claimant had exaggerated their injuries. The tribunal noted that the claimant’s own medical records contradicted their evidence.

The Cost of Fraud for Your Business

Even if a fraudulent claim is ultimately denied, the process can be costly and disruptive. You may face:

• Increased premiums: Your insurer may increase your premium at renewal, even if the claim was denied, because the claim has been recorded against your policy.
• Excess payments: Most policies require you to pay an excess (typically $500–$2,000) if a claim is made, regardless of the outcome.
• Time and stress: Responding to an investigation can take weeks or months, diverting your attention from running your business.
• Reputational damage: If the claim becomes public, it may harm your business’s reputation, even if you are ultimately vindicated.

FAQ: Fraudulent Public Liability Claims

How common are fraudulent public liability claims in Australia?

In 2026, fraudulent and exaggerated claims account for an estimated 8–12% of all public liability claims. Opportunistic fraud—where a genuine incident is inflated—is far more common than premeditated fabrication.

Can my insurer deny a claim if I was not involved in the fraud?

Yes. Under section 56 of the Insurance Contracts Act 1984 (Cth), if a claimant makes a fraudulent claim, the insurer is not liable for that claim—even if you had no knowledge of the fraud. However, the insurer cannot avoid the entire policy unless you were involved.

What should I do if a claimant threatens to sue me for reporting them to the insurer?

Threats of legal action are common but rarely succeed. If you have reported your concerns in good faith and based on reasonable grounds, you are protected by the defence of “qualified privilege” under defamation law. Consult your insurer and a solicitor if you are concerned.

Can I be prosecuted for fraud if I unknowingly pass on a fraudulent claim?

No, as long as you were not involved in the fraud and took reasonable steps to verify the claim. However, if you knowingly assisted or concealed the fraud, you could face criminal charges.

How long does a fraud investigation take?

Simple investigations may take 4–6 weeks. Complex cases involving surveillance, IMEs, and expert reports can take 3–6 months or longer. The insurer must keep you informed of progress.

Will my premium increase if I report a suspected fraud?

Not necessarily. Insurers distinguish between claims that are denied due to fraud and those that are paid. However, any claim—even a denied one—may affect your claims history and premium. It is best to discuss this with your insurer or broker.

Can I refuse to pay the excess if the claim is fraudulent?

No. The excess is payable when a claim is made, regardless of the outcome. However, if the insurer recovers costs from the claimant (e.g., through a court order), you may be reimbursed for the excess.

Is there a difference between state laws on fraudulent claims?

The core principles are consistent across Australia, thanks to the Insurance Contracts Act 1984 (Cth). However, state Civil Liability Acts differ in how damages are assessed and what defences are available. For example, Queensland’s Civil Liability Act 2003 has specific provisions on proportionate liability, while NSW’s Civil Liability Act 2002 includes a “dangerous recreational activity” defence. Always consult a local solicitor for state-specific advice.

Fraudulent public liability claims are a reality of doing business in Australia. By understanding how insurers investigate them, what the law says, and how to protect yourself, you can reduce your risk and respond effectively if you are targeted. Remember: your insurer is your ally in this fight. Cooperate fully, preserve evidence, and seek legal advice when needed. Your business—and your bottom line—will be stronger for it.