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Insurance Advisernet client loses compensation bid for water damage loss

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An Insurance Advisernet client seeking to have the broker pay for the remainder of his claimed costs for damage to his property from a water leak has lost his case before the Australian Financial Complaints Authority (AFCA).

The client had already accepted $40,000 following a previous complaint against the insurer, with the payment representing 40% of the costs. This was done on a commercial basis without admission as to liability.

The insurer had initially declined the claim – which relates to the 2013/14 period of insurance – citing non-disclosure of the property’s pre-existing damage from the January 2011 Brisbane flood event.

In the complainant against Insurance Advisernet, the client says the broker should pay for the remainder of the loss suffered since it failed to pass on the information about the property to the insurer when the policy was incepted in late 2011, after he had bought the property.

The client says he had disclosed the unrepaired flood damage from the 2011 floods to the broker and that it was the broker’s failure to inform the insurer that led to his claim being rejected in September 2018.

But AFCA is not convinced the broker’s failure to disclose the pre-existing damage to the property caused the complainant to suffer the alleged loss.

“This is because the information does not show that any such failure to disclose that information was continuing, operative or applicable in 2013,” AFCA ruled.

“Alternatively, no evidence was provided about the insurer’s underwriting practices at either time to determine whether it would have refused cover.”

AFCA says there is also the added problem of whether the event being claimed was the cause of the loss.

“The insurer argued it did not,” AFCA says. “This was clearly an issue in dispute that remained unresolved by the time the dispute was lodged against the broker.

“Further, it is not clear that the insurer’s settlement of $40,000 is insufficient to fix the damage that was solely attributable to any 2013/2014 event.”

According to details contained in the AFCA ruling, in the policy schedule sent by the broker, the condition of the building was described as “very good” in the underwriting information section.

AFCA says it is clear this answer was incorrect since the property had sustained flood damage and the internal works were substantive. The client had bought the property in December 2011 at a discounted price due to the unrepaired flood damage, which was still present when the policy was incepted.

“Therefore, the panel does not accept a fair description of the building’s condition is ‘very good’,” AFCA says.

“Instead, a reasonable person in the complainant’s circumstances would have disclosed the house had internal damage that needed to be repaired.

“Accordingly, the panel accepts the complainant likely failed to comply with his duty of disclosure when answering this question.”

The AFCA panel acknowledges the client accepted a compromise in his claim against the insurer and that if he made a commercial decision to compromise on that dispute, it is not the broker’s responsibility to pay for his remaining claim.

“Particularly given he had the option to have the insurance issue determined by AFCA,” AFCA says. “Therefore, given the above, the panel is not satisfied the broker is required to compensate the complainant for the difference between the insurer’s ex-gratia settlement and the amount he is seeking.”

However AFCA did order the broker to pay $3000 in non-financial loss to the client. It says the broker’s failure to disclose the existing internal damage to the property in 2011 resulted in a substantive degree of inconvenience and stress to the client.

“The insurer has referred to this failure as a basis to deny the claim,” AFCA says. “It resulted in the complainant having to dispute this point on top of the other issues raised.

“The complainant would not have had to if this information had been properly disclosed to the insurer when incepting the policy in 2011.”

Click here for the ruling.