A landlord who suffered two fires at a property within five months has failed to have the second event assessed as a total loss but has been awarded maximum compensation for poor claims handling.

The Australian Financial Complaints Authority says the home was a total loss after the first fire, so the complainant did not suffer a further loss on the second, when it had a $486,000 sum insured.

The first fire claim was lodged on February 9, 2023.

An engineer appointed by insurer Youi reported catastrophic damage to the “particularly aged” home – which was at least 70 years old – and provided a preliminary scope of works

On July 2, the insurer notified the policyholder of a $395,581 settlement offer based on the cost of repairs, loss of rent, clean-up and contents. The claim was cash settled on July 10.

The landlord’s policy was renewed on June 15 2023, with the sum insured increased from the previous $450,000.

The second fire broke out on July 2 2023. The complainant said it caused substantially more damage and resulted from the insurer failing to adequately secure the property.

The insurer obtained a quote of $26,709 for damage resulting from the second claim.

Subsequently, the insurer reviewed the first claim and on October 4 last year offered to settle it as a total loss. It proposed to pay an additional $90,318 to reach the $450,000 sum insured, plus $74,030 for clean-up and professional fees for demolition; interest on the additional payment; an extra $21,600 for loss of rent; and a $2500 excess refund as non-financial loss compensation.

The complainant said the insurer was attempting to avoid liability and terminate the second claim, and it was unreasonable to change its position on the first claim 15 months after it was settled.

He argued the property remained repairable in the first instance but was a total loss after the second fire. He maintained he was covered for both separate events, and the insurer should pay the sum insured of $486,000 for the second claim.

The complainant said he was willing to compromise and seek $350,000, while accepting the offer on the additional loss of rent, demolition and clean-up costs, and excess refund.

In its dispute ruling, AFCA says it appears the preliminary scope of works for the first claim was altered by the insurer’s assessor and many items amended, including the number of foundations needing replacement and the extent of electrical rewiring and timber wall replacement required.  

The ombudsman says it is satisfied the property was a total loss following the first fire.

But it finds the insurer incorrectly calculated the settlement offer, and it should pay an additional sum of $140,249 rather than the $90,318 figure. It also orders the payment of the $74,030 and the rent loss of $21,600, and says the insurer should refund premiums paid since renewal of the policy in July 2023, plus interest.

It has awarded $6300 in non-financial loss compensation.

AFCA says the insurer relied on a preliminary scope of works to determine a cash settlement, its assessor made alterations without any explanations on the basis, it delayed obtaining quotes, there was no contingency uplift, and communication was poor.

“The panel is satisfied that the insurer’s poor handling, which also included errors in calculations of settlement, has caused undue stress and inconvenience to the complainant.”

The decision is available here.