Lismore resident loses dispute after opting out of flood/run-off cover

A Lismore resident whose home was severely damaged by floods will not be compensated for her losses after she opted out of “unaffordable” flood and rainwater run-off covers years before the event.

The complainant lodged a claim with IAG following last February’s historic flooding event. The homeowner said she had moved her items to a height above previously recorded flood levels; however, the waters greatly exceeded the height, reaching 2.7m.

IAG relied on a report from an internal assessor who says floodwater rose above ceiling height, noting damage to wall and ceiling linings. The report noted “brown water” with a “musky smell” in the home and said water had remained on the property for three days. The assessor concluded flood and rainwater run-off was the only cause of the damage.

The insurer declined the claim, saying the claimant chose to opt out of flood and rainwater run-off in her 2018/19 policy renewal.

The homeowner said she had flood cover included as part of her policy in 2017 despite her not requesting it, but she did not have it removed because premiums remained at a similar cost.

IAG informed the policyholder in a letter that accompanied her 2018/19 Certificate of Insurance (COI) of policy changes relating to flood and rainwater run-off cover. The insurer said it would automatically include cover for flood, rainwater run-off and storm surge.

The complainant phoned IAG on June 13 2018, to opt out of flood cover after receiving a hefty premium bill, with the insurer sending an amended COI that included in the title “excluding flood, rainwater run-off & storm surge”.

The claimant argued that the insurer was “deceptive” in including “storm cover in the same category as flood” and “hiding it in the PDS”.

The Australian Financial Complaints Authority (AFCA) disagreed with the complainant, saying that the first page of each of her policy renewal documents from 2018/19 onwards “clearly informs” that flood, rainwater run-off and storm surge are excluded.

AFCA noted a recorded call from May 29 2019, between the policyholder and an IAG representative. The consultant is heard informing the complainant that the insurer refers to “flood cover” as “flood, rainwater run-off and storm surge cover”.

The ruling determined that the insurer provided the complainant with relevant documents to inform her of the changes it was making to her policy.

“The policy is clear. It does not cover loss or damage caused by flood, rain water run-off or storm surge.”

It noted that the woman suffered financial hardships due to events “beyond her control” and could not pay the premiums.

“The panel also acknowledges the premiums to include flood, rainwater run-off and storm surge cover were not affordable for most people. However, it is clear, the complainant opted out of flood, rainwater run-off and storm surge cover, most likely because of the premiums charged,” AFCA said.

The panel did require IAG to pay compensation of $2000 for non-financial losses relating to early miscommunication that caused an “unusual degree of inconvenience and stress at a time when the complainant was under extreme stress due to the floods”.

Click here for the ruling.