A property investment group has won a payout for tenant arson after challenging its insurer’s allegation that it fraudulently misrepresented its building’s use when buying cover.

The group lodged a damage claim after a blaze at its Queensland property in November 2021. Police found the fire was lit by a tenant in one of the seven bedrooms.  

An assessor determined demolition and repair costs to be between $550,000 and $600,000. The claimant’s landlord policy had a sum insured of $400,000.  

But insurer IAG declined cover and cancelled the policy because the property was rented to a non-profit organisation that used it for social housing.  

It said it would not have offered insurance if it knew the building was used for these purposes.  

The insurer argued the property investment group made a fraudulent misrepresentation by answering “no” to a policy question asking if the building was used for community housing.

In a dispute before the Australian Financial Complaints Authority, IAG referred to its investigator’s notes, including those from an interview with the former CEO of the non-profit stating the claimant had been shown inside the property and knew it was used for temporary accommodation.  

But a director at the claimant group said he had never met the former CEO and never inspected the building’s interior before buying the property. He said he bought it only to receive a “steady source of investment income” from the lease.

The investigator also interviewed the non-profit’s current CEO, who was unsure whether investors knew what the property was used for but said their real estate agent would have known.  

The agent said he did not know but had conducted routine inspections and did not identify any concerns. He said he was appointed to manage the property following the company’s purchase and the lease did not mention it being used as a rooming, boarding or halfway house.  

AFCA says that for IAG to prove fraud, it would have to establish the claimant “knowingly or recklessly made a misrepresentation when the policy was incepted”.  

It finds the evidence does not establish that the claimant knew the building was used for community housing.  

The authority takes issue with the investigator’s evidence, noting there are no written statements from interview subjects and no contemporaneous information to show the director visited the property.  

It says it is unusual that the claimant did not inspect the property before the purchase, but it accepts the director’s reasoning.

“It is not sufficient, as the insurer has done, to speculate as to what the complainant knew, or to prefer statements of one party over another without independent verification or corroboration,” the authority said. “Further, it is not sufficient for the insurer to rely on alleged statements such as the inference ... that ‘his estate agent knew’ without supporting evidence or documentation.  

“Such unsatisfactory evidence does not demonstrate the complainant made a misrepresentation or, if it did so, it was done recklessly or fraudulently.”  

AFCA has ordered IAG to accept the claim, remove any references to fraud and appoint an expert to conduct a scope of works for repairs. Within seven days of receiving the quote, the insurer must agree to start repairs or offer a cash settlement with a 20% contingency.  

Click here for the ruling.