Policyholder loses underinsurance dispute after clause applied

A commercial policyholder has lost a dispute lodged with the Australian Financial Complaints Authority (AFCA) after building underinsurance led to a reduced claim payment when part of the property was damaged by a fire caused by arson.

The building was insured for $300,000 but a quantity surveyor report obtained by QBE assessed the property value at $568,161.

After the fire, a building expert provided a repair quote of $35,279.64, leading to an offer to settle the claim for $23,285.42 after an underinsurance clause was proportionately applied.

The complainant said the sum insured was an amount a reasonable person would estimate, she had no knowledge of the actual rebuilding cost and the insurer had a duty to advise her of the correct level of cover.

The policyholder also argued the underinsurance clause was complex and should have been explained to her, it was unreasonable for the insurer to rely “on the fine print” and its actions constituted an “abuse of its power and knowledge”.

AFCA says the policy wording has an important information notice about underinsurance and includes a worked example of how a deduction would be calculated when the clause is applied, while an insurer can only provide general advice.

“This means an insurer cannot offer a recommendation or opinion about the insurance cover based on the person’s individual circumstances. The policy wording includes a general advice warning to this effect,” it says.

The complainant additionally purchased the policy through a broker and “had the option of seeking their assistance in understanding the policy wording and her coverage options”, the adjudication says.

AFCA says the original repair quote on which the cash settlement offer was based was now a year old and doesn’t adequately take account of contingencies or the transfer of risk to the complainant. It determined a 15% “uplift” should apply, taking the cash settlement to $26,777.25.

Business interruption cover was also claimed, with insurer requests for more information contested in the complaint.

The policyholder argued payment should already have been made based on information provided, and she should also receive compensation for the claim handling delay.

AFCA found the insurer’s request for more financial information, including turnover figures, was reasonable as excel spreadsheets submitted couldn’t be verified, but found no need for more rental details.

The decision says the complainant should provide a certified statement from her accountants or auditors showing the financial details requested. It rules out compensation for handling delays.

“The available evidence suggests that the insurer promptly investigated the various aspects of the claim,” the decision says.

“Further, the information it has requested from the complainant has been reasonable and necessary, even allowing for my finding that the complainant is not required to respond further to the insurer’s request for lease agreements.”

Although the complainant “has no doubt” found her situation stressful, the decision says, there is almost always a degree of inconvenience and stress associated with a claim, and the policyholder has not shown her experience has been unusually difficult.

The decision is available here.