Insurer must pay for mould damage caused by lengthy disputed claim

A homeowner will be compensated for mould remediation costs after winning a dispute against her insurer over its handling of several water damage claims that led to the growth.

The complainant lodged three claims between July 14 2020 and November 30 2020 relating to damage caused by a storm or an escape of liquid in the home. IAG accepted liability and agreed to cash-settle the claims.

However, disputes arose after the damage was found to have worsened. The insurer said these issues arose due to the claimant’s failure to complete the required maintenance work, delaying the remediation works.

But the insured said IAG failed to identify the water leakage that caused mould to spread and sought opinions from independent assessors, which caused some delays. She also argued that ongoing covid lockdown restrictions inhibited the works.

An insurer-appointed building group, referred to as BBG, reported that a leaky shower recess and screen caused the damage in the first claim. It did not report on the extent of damage to the subfloor from the leak but acknowledged that some could have existed.

IAG agreed to cash settle the claim for the “known damages” to the bathroom, carpets and timber floor. It noted the potential damage to the subfloor and the area underneath it and said it would consider payment once the bathroom repairs were completed.

It contended the claimant “failed to complete necessary repairs”, which caused the mould and deterioration to have worsened more “than what it should have been”.

A second claim was lodged on November 10 2020, relating to water-stained kitchen ceilings, a leaky front porch light and the front door of the home swelling. BBG provided a scope of work and a quote of $26,880 to repair the damaged sections.

The insurer said the repairs could commence once the leak was fixed and offered a settlement of $19,375 for the damage.

A third claim arose after a “yellow stain on the ceiling of the kitchen” was found to have been water damage caused by a leaky toilet. The insurer cash-settled the claim and offered mould remediation to the affected areas of the first and third claims sometime around February last year.

The Australian Financial Complaints Authority (AFCA) acknowledged that “the failure to complete the bathroom repairs in a timely manner may have exacerbated the mould damage,” but disputed IAG’s contention that the homeowner was largely at fault for the increased damage.

It noted that there was no indication the policyholder was aware of the leaking toilet in November 2020, despite the insurer claiming that she was. It said that the claimant only became aware of the issue in March 2021 after a leak detection test and that she “acted reasonably” in having it repaired.

The ruling emphasised notes from IAG in which it identified the complainant as “very vulnerable”. It said that the insurer should have been mindful of the “difficult position” she was in, given ongoing covid lockdowns and the uncertainty surrounding the claims.

AFCA said it was not unreasonable for the homeowner to delay mould remediation works until all sources of water damage were identified and noted that she “acted promptly” in having repairs completed once the source was confirmed.

The ruling required IAG to complete the mould remediation works and authorised that an independent engineer should be engaged to assess the damage to the subfloor area, with the insurer covering the costs associated if need be.

It found that the insurer’s cash settlements were “fair in the circumstances,” saying that the complainant offered no persuasive evidence to challenge the provided amounts.

AFCA also required IAG to provide $3000 compensation for non-financial losses associated with its claims handling, noting delays in delivering reports and poor communication with the complainant, despite IAG being aware of her “very vulnerable” state.

It acknowledged that not all delays were due to the insurer but found that, at times, the claim had “not been managed appropriately”.

Click here for the ruling.