A car owner will be refunded the premiums he paid for an equity protection insurance (EPI) policy after a dispute ruling found his insurer engaged in inappropriate sales tactics.

The complainant purchased a new vehicle in or around April 2020 from a car dealer who also acted as an authorised representative for Eric Insurance. The purchase was funded by a seven-year loan that the dealer arranged.

The dealer’s business manager, referred to as RS, sold the policy on behalf of the insurer and received a commission from the sale.

The complainant repaid his loan some time around June 25 last year and cancelled his policy a few days later.

The man said he had been unaware that the loan included the policy because there had been no discussions about gap insurance during negotiations.

He said he only discovered the policy recently and cancelled it because he did not ask for it and already had an agreed value comprehensive policy for the vehicle. He demanded that the insurer refund him for his policy premiums.

The Australian Financial Complaints Authority (AFCA) said RS had been aware that the owner had an existing policy and sold the gap cover despite it being unnecessary.

The insurer said the EPI it offered provided additional benefits compared to general gap insurance, and did have value to the complainant.

The complainant’s partner, who was also present during the dealings and a joint policyholder, said there had been no mention of insurance in any of their conversations with the dealer.

She said the couple interacted with RS on only one occasion, where the business manager conducted “extra sales” regarding tinting and paint protections.

According to Eric Insurance, the complainant was introduced to its online sales system on April 14 2020, which provided him with product disclosure statements (PDS) and a financial services guide (FSG).

It said when the man returned to the dealership six days later, he expressed interest in purchasing EPI and agreed to buy the policy “upon finalisation and collection of his vehicle,” which had been on April 24, 2020. He was subsequently sent documents and emails that confirmed his purchase.

AFCA acknowledged that the man did sign the contract that added the policy premium to his loan but said it was worth considering the insurer’s selling practices.

“It is important to look beyond the mere fact the complainant may have signed or received documents. It is important to consider the circumstances in which a policy was sold,” AFCA said.

AFCA said Eric Insurance failed to explain why it allowed RS to sell the policy when she did not have the proper authorisation. It said the AR was only authorised to deal with products listed in the FSG, which included gap insurance, but not EPI.

The determination also considered numerous inconsistencies in the insurer’s account, including whether the complainant agreed to buy the policy.

“This has not been satisfactorily addressed by the insurer to date, despite the complainant pointing the issue out several times,” AFCA said.

Submissions by the insurer to AFCA provided inconsistent claims on the policy agreement and activation dates.

AFCA found several of the insurer’s claims to lack recorded evidence, including the alleged meetings on April 14 between the complainant and RS and whether the man had utilised the insurer’s online service.

The ruling said the insurer’s lack of evidence to corroborate consistent claims severely hampered its credibility and quoted its account of the sale as “unclear, unsubstantiated and inconsistent”.

It said “at best,” the complainant expressed interest in the policy but at no point agreed to buy it and that the insurer failed to uphold guidelines to prevent inappropriate sales tactics from its agents.

“It has also not shown its sales processes and systems were sufficiently robust to prevent an unauthorised sale.”

The ruling required Eric Insurance to fully refund the complainant’s premium, including reimbursement on all interest.

The insurer was obligated to refund the total premium amount of $1028.26, or a partial amount depending on whether the complainant’s financier had already forwarded money that the insurer sent for unused premiums.

The vehicle owner was awarded non-financial loss compensation of $500 for delays caused by the insurer sending money to the financier despite the complainant already paying off his loan.

Click here for the full ruling.