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Landlord claiming COVID is 'civil commotion' loses dispute

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RAA Insurance has successfully argued that its policy term "civil commotion" refers only to something similar to a riot, and not to COVID-19 as a landlord customer insisted during a claim dispute hearing.

The landlord owned two residential properties, each insured under an RAA home and contents policy covering damage caused by civil commotion.

Tenants at both properties vacated and stopped paying rent due to the COVID pandemic and he lodged claims for loss of rent, relying on the commotion cover.

Civil commotion was a disturbance, he said, and the pandemic has been “a major disturbance”.

The property owner had previously enquired about changing the policies from home to landlord insurance, telling RAA he was planning to rent multiple rooms in a building to different people. The insurer said its landlord policies would not cover buildings used this way and he left his cover unchanged.

“RAA Insurance did not mislead or deceive him into making this decision,” the Australian Financial Complaints Authority (AFCA) said.

AFCA ruled pandemic was not civil commotion as the phrase “would be understood by an ordinary person”.

“RAA Insurance is not required to pay compensation or take any other action with respect to this matter,” AFCA said. “The insured properties were not damaged by a civil commotion, or any other insured event. Therefore, RAA Insurance is entitled to deny the claims.”

RAA cited a dictionary definition for civil commotion stating it meant an insurrection not amounting to rebellion, and must contain elements of turbulence or tumult and did not encompass an organised riot.

“It is often said to be intermediate between a riot and civil war. A civil commotion must be something done by the participants together,” the definition said.

The precise policy wording was "riot or civil commotion" and RAA said that implied a civil commotion was something similar to a riot. It also appeared in a general exclusion for war, mentioned alongside "acts of a foreign enemy", "mutiny", "an uprising or rebellion", "riot", and "looting".

RAA said that implied a civil commotion was in the same category as the other things mentioned in the war exclusion.

AFCA’s ombudsman agreed with the insurer and also said RAA Insurance was not required to compensate the landlord for an error it made when it sent him an email in May last year saying “you are seeking to lodge a claim for loss of rent which is an insured event under the Home and Contents policy you currently hold”.

That was an error by the insurer as loss of rent was not an insured event under the property owner’s policies, AFCA said, but as the email was sent after tenants at both properties had moved out and the property owner had already lodged claims for loss of rent, RAA’s error did not cause the property owner to suffer any loss.

The policies covered loss of rent if the home became unfit to live in as a result of loss or damage covered by an insured event. AFCA said there was no evidence COVID made the properties unfit, so even if the pandemic was an insured event the landlord would not be entitled to any payment for loss of rent.

The property owner’s other arguments were also not persuasive, AFCA said, for example that the insured event of "Impact" should be considered, because the pandemic impacted his business.

The "impact" section covered damage caused by specific objects, including vehicles and falling tree branches, impacting an insured building, AFCA said, and was not relevant to the property owner’s claims.

The landlord said the pandemic has been declared a natural disaster but AFCA said that was not an insured event and not relevant.

“The property owner’s properties were not damaged by an insured event, so no loss of rent is payable,” AFCA said.

The landlord was also denied compensation after he asked RAA Insurance about landlord insurance during a phone call a year before the pandemic, saying he was considering renting a building to one person, who would then sub-let individual rooms in the building.

RAA said if the properties were used this way, it would not insure them under any of its policies and directed him to a website where he could search for policies offered by other insurers.

The landlord decided to maintain his RAA home insurance policies and not buy landlord insurance.

“He has not provided information showing RAA Insurance misled or deceived him into making this decision. The insurer is not required to pay compensation or take any other action with respect to this matter,” AFCA said.

See the full ruling here