Insurer loses disclosure dispute over fire-damaged property

Claimants whose property was destroyed by fire will be compensated for their losses after a dispute ruling overturned their insurer’s decision to decline the claim due to duty of disclosure breaches.

The complainants lodged a claim after a blaze damaged their unoccupied premises on December 25, 2021, with repair costs likely to exceed the policy limit of $350,000.

Allianz denied the claim, saying the policyholders breached their duty of disclosure by not informing it that the property had been unoccupied for more than 60 consecutive days after the policy was taken out.

It referred to Section 28 of the Insurance Contracts Act 1984 (the Act), which says that insurers are entitled to limit cover for disclosure breaches based on the level of prejudice they suffered.

The insurer said the property owners made a misrepresentation when they declared that the property would be occupied within 60 days of the policy inception date. It said it would not have offered an insurance policy if it had been aware of the residency circumstances.

The complainants disputed the insurer’s decision and said circumstances related to government-ordered pandemic lockdowns delayed renovation works that had been ongoing on the property when the policy was taken out.

They said that the property had not been unoccupied for the entire period of insurance, as their son and nephew had both stayed there at times.

The Australian Financial Complaints Authority (AFCA) acknowledged the insurer’s concern with the complainants’ failure to disclose that the property had not been occupied but said it could not rely on it to decline the claim.

It said that Section 22(1) of the Act required prospective policyholders to inform the insurer on matters known before the policy is incepted.

AFCA said that the available evidence showed that the claimants “genuinely believed” that the property would be occupied and that a reasonable person could not have foreseen the lockdown-related delays to the renovation works.

It said therefore they had not made a misrepresentation.

Allianz said the homeowners breached policy conditions which required the policyholder to inform it of any changes to the occupancy details “immediately”.

The complainants did not dispute that no one had permanently resided at the property but said that it had been occupied at least four times by their son, as well as their nephew, who stayed there a month or so before the claimed event.

AFCA acknowledged that the property owners breached a policy condition but said the insurer could not establish that this prejudiced its decision to limit liability or decline the claim.

It pointed to the insurer’s underwriting guidelines and practices, which considered renovations and extensions “acceptable reasons for unoccupancy”.

“Given the renovation delays were caused by unexpected pandemic lockdowns and the renovations were supervised by the complainants’ son RG who lived five minutes away and regularly attended the property, I am persuaded the insurer would have been permitted under the underwriting guidelines to avoid cancelling the policy,” AFCA said.

The ruling noted that the general exclusion could only be applied if the premises had not been occupied within 60 days of the claimed event. It said that the complainant’s nephew had stayed at the property between November 19 to 21, which was less than 60 days before the fire.

AFCA required Allianz to accept the claim and cover damage associated with the event based on a repair quote from the complainants.

Click here for the ruling.