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Allianz told to up earthquake damage offer in claim dispute

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A claim dispute hearing has determined Allianz must triple its offer to WA-based homeowners who were struck by an earthquake almost three years ago.

The homeowners held a Home & Contents policy with Allianz which covered accidental loss or damage, including damage caused by earthquake and landslide or subsidence occurring within 72 hours due to earthquake.

A 5.7 magnitude earthquake struck in mid September 2018 and caused damage to the property. It was followed by significant aftershocks and over 100 earth tremors. A few days after the earthquake, they lodged a claim.

Allianz said some damage was caused by circumstances excluded from cover, including wear and tear, gradual deterioration and defective or faulty workmanship. Once the damage was assessed Allianz apportioned the damage.

It initially offered to settle the claim for $80,000 based on an engineering opinion which concluded 60% damage due to the earthquake.

That was rejected and the engineer reassessed the damage and concluded the initial assessment was “rather generous” and recommended reducing apportionment from 60% to 20% for earthquake related damage, with the rest deemed primarily caused by pre-existing structural defects.

Allianz accordingly revised its offer down to $32,558.

The homeowners said the offer was unreasonable and went to the Australian Financial Complaints Authority (AFCA) disputing the percentage apportionment of liability relied on by Allianz and saying it should either authorise repairs or rebuild the home.

AFCA found Allianz’s offer was not fair in all the circumstances and it should increase its offer to $99,025 - 60% of a builder’s quote, including a 15% allowance for contingencies. Allianz should also pay interest from March 17 last year and $4800 for temporary accommodation while repairs were done to the sole bathroom and kitchen, it said.

Allianz had obtained a quote from a builder which estimated the repairs and improvements at $271,815. No alternative engineering assessments or scope of works was provided by the policyholder.

Based on the builder quote, Allianz offered $271,815 (less un-event related upgrades of $128,301), which resulted in insurance related repairs of $143,514 (less 80% pre-existing damage: $114,812). This came to a total $28,703 plus 15% contingency ($4305) for a total $33,008, less an excess of $450, for a total settlement of $32,558.

“The panel acknowledges further engineering assessments may result in revised apportionment with respect to liability. The panel notes however that the assessment was not based on a site-specific review,” AFCA said.

“The assessment does not refer to the differing construction methods used in the other properties. The panel is not satisfied the insurer’s offer is fair in the circumstances as it has chosen to reduce its liability based on an engineering assessment which considers other sites and properties constructed from different methods.

“The initial calculations were site specific rather than an unsubstantiated generic opinion.”

AFCA agreed with Allianz that the property foundations did not sustain damage because of the insured event, the earthquake, but said as Allianz’s builder was unable to warrant the works, Allianz was not compelled to undertake the works and was therefore required to cash settle the homeowners.

“The insurer is therefore required to cash settle the complainants for the repairs to their property in the sum $99,025,” it said.

See the full ruling here.