Crime shouldn’t pay at claim time

Col Fullagar

9 June 2026

These days it is rare to engage with any form of media and not be confronted with news of criminal activities – robbery, arson, assault, the list and frequency seem endless.

When it comes to criminal activities, people are generally in agreement that the perpetrators should not only be appropriately punished but, if in the course of engaging in same they incur an injury or contract an illness, they should not receive compensation and certainly not receive a financial advantage.

In recognition of this, over the last few years an increasing number of risk insurance policies have included a Criminal Activity Exclusion Clause.

Easy Peasy you would like to think; if you commit a crime and crapus happens you will not be paid. However, as is too often the case with matters related to risk insurance, nothing is ever quite as easy as it seems or as you would like it to be.

Criminal Activity

When considering criminal activities, the first thing to appreciate is that the law recognises two types of criminal offences ie those at common law and by statute.

• Common Law

At common law, for an offence to be deemed a criminal activity, two elements are required:

First, there needs to be intent (the mens rea). Thus, to be found guilty of “intentionally causing serious injury” for example, by definition it would need to be proven to the satisfaction of the court that the perpetrator voluntarily intended to cause serious injury to the victim.

Second, there needs to be a physical act (the actus reus) that gives rise to the offence. Again, by way of an example, to be found guilty of theft would in part require the taking of another person’s property or services without permission and with the intent to permanently deprive the owner of that which was taken.

• Statutory Offences

Broadly speaking there are three types of statutory offences:

• In the first type, “intent” must have existed at the time of committing the offence. This might be actual intent, for example the accused intended to commit murder; reckless intent, where the accused was aware of the probable consequences of an action and proceeded notwithstanding; and negligent intent such as manslaughter arising out of criminal negligence.
• Next are strict liability offences, such as a licensee selling alcohol to a person under the age of 18. In these situations, the defence of honest and reasonable mistake is open to the accused. For example, a licensee may satisfy the court that following reasonable enquiry, they believed the customer was aged 18 or more.
• Last, there are absolute liability offences in which the prosecution does not have to prove intent. For example, exceeding the prescribed concentration of alcohol in the blood while driving a motor vehicle. With these, the defence of the honest and reasonable mistake is not available; it does not matter that the accused believed, even on reasonable grounds, that they were below the prescribed concentration.

Conviction and Sentencing

Subsequent to being charged with a criminal offence, there are generally three possible outcomes:

• The accused pleads guilty
• The accused goes to trial and is found guilty, or
• The accused goes to trial and is found not guilty.

The first two will generally result in a conviction following which a sentence or otherwise penalty will be imposed.

Whether or not an offence can result in a term of imprisonment will depend on legislation that applies in the State or Territory in which the offence occurred.

A sentence of imprisonment is the last resort on the punishment hierarchy and, for example in Victoria it must not be imposed unless the court considers that the purpose for which the sentence is to be imposed cannot be achieved by any other means such as a fine, community-based service or a suspended sentence.

Example Clauses

Following on from the above as background, the below are examples of clauses within the market …………..

Example 1 – Income Protection Insurance

“We will not pay any benefit if your sickness or injury is caused directly or indirectly by you committing or attempting to commit a criminal offence”

Criminal Offence is later defined as “Any crime for which you are convicted where you could receive a custodial sentence, whether or not you do in fact receive a custodial sentence for that crime. Custodial sentence means confinement in any prison, correctional centre or remand centre.”

The use of the words “directly and indirectly” and “committing or attempting to commit” not only broaden the range of the exclusion but add subjectivity to it. Thus, for example, it might be reasonably asked if the exclusion would apply if disability arose not only whilst committing a criminal offence but also whilst planning to commit it.

It should also be noted that actual incarceration is not required; it is simply necessary that the relevant criminal offence has the potential to lead to incarceration. Thus, for crimes where punishment ranges from a fine for a relatively minor incident by a first offender through to incarceration for a serious incident by a serial offender, there is a risk the former will be prejudiced by the latter.

One last point is that the exclusion continues to apply even if the period of incarceration has ended.

Example 2 – Income Protection Insurance

“We will not pay a disablement benefit claim:

• Where disablement is due to your participation in criminal activity or resulting from incarceration, and
• For any period you are incarcerated arising from your participation in criminal activity”

The exclusion only applies to disablement benefits ie total and partial, which may leave ancillary benefits open to payment.

Unlike Example 1, Example 2 does not define “criminal activity”.

The second leg of the exclusion only applies during the period of incarceration, but arguably this is rendered redundant by the first leg which does not have this limitation.

Example 3 – Total and Permanent Disability

“We won’t pay a benefit under TPD Cover where the sickness or injury arises directly or indirectly from committing or attempting to commit, a criminal act for which you:

• Have a conviction recorded, and
• Are serving, or have served, a term of imprisonment as a result of a conviction.

If you have been charged with a criminal act which may incur a term of imprisonment, we may delay making a decision on whether to accept or decline the claim until the conclusion of criminal proceedings, including sentencing, and we have sufficient information to determine if this exclusion clause applies”

The latter half of this clause adds a new dimension in so far that a decision on the claim could be deferred for a lengthy period if legal proceedings are similarly drawn out, for example, by way of an appeal. Some might see this as unjust if the insured is eventually found not guilty.

Example 4 – Child Cover

“We’ll not pay any benefit under Child Cover ….. for any illegal act inflicted on the insured child by you or the child’s guardian.”

With the above, there is no requirement for the relevant parties to be charged or convicted.

Muddy Waters (with apologies to the late, great Blues singer)

As before, most people philosophically agree that someone should not be compensated for or profit from, a loss suffered as a result of participating in a criminal activity.

At the same time, most people are also philosophically in agreement that an insurance contract should clearly and comprehensively set out the position in regard to what is and is not covered.  In addition to clear and comprehensive, maybe consistency of terminology would be a plus.

In researching this article, the author noted that whilst criminal activity exclusion clauses are more common than in the past, they are not yet universal either by insurer or policy type. Having said that, however, it should be noted that silence is not always golden. Even though some contracts do not contain a specific exclusion, there may be occasions where the insurer would look to avoid making a claim payment arising out of participation in a criminal activity by relying on the common law forfeiture rule and the public policy principle that a person should not profit from their own wrongdoing.

Forfeiture Rule and Public Policy

Quite apart from any contractual exclusion clause, common law has long recognised a public policy principle – known as the forfeiture rule – that a person who unlawfully kills another should not benefit from the death. This has particular significance with life insurance where the death of the insured may trigger a substantial financial benefit.

In Australia, the High Court considered the forfeiture rule in Helton v Allen (1940) 63 CLR 691. In that case, Mrs Helton shot and killed her husband but was acquitted on the grounds of insanity. The question arose whether she could benefit under his life insurance policy. The High Court ruled that the forfeiture rule applied notwithstanding the acquittal, because the rule is grounded in public policy rather than criminal liability. As such, the decisive question was not whether there was a conviction for a criminal offence but rather had an unlawful act been committed.

The forfeiture rule thus provides a robust public policy foundation for declining insurance benefits where the claimant has unlawfully caused the death of the insured albeit many nuances exist including the potential for an insurer to look to extend the public policy principle to areas involving injury rather than death …… thus why specialist solicitors have an important role to play in this complex ecosystem!

Well, after all that, maybe a light ending is called for ………… “Why did the thieves take a bath?” “Because they wanted to make a clean getaway”

PS The assistance of Craig Parrish, Principal of Maurice Blackburn Lawyers, in writing this article is gratefully acknowledged.

Col Fullagar is the principal of Integrity Resolutions Pty Ltd