A small business will be paid the full cover amount for a storm-damaged shed after winning a dispute over whether the property was underinsured.

The building was insured for $300,000 on a replacement basis, but QBE said expert reports showed rebuilding would cost more than double that. It applied an underinsurance clause, which proportionally reduces the amount payable even when there is not a total loss.

A quantity surveyor for the insurer assessed the replacement cost at $623,209, while a builder quoted damage repairs at $251,646.

After applying its underinsurance calculation, the insurer proposed a settlement of $151,241, later revised to $202,272, with a 25% uplift.

The complainant obtained quotes from the largest shed manufacturer and other builders showing the entire structure could be replaced with its internal office and amenities for $300,000. It said the property met the threshold for “constructive total loss” and the full amount should be paid.

The Australian Financial Complaints Authority says the type of shed damaged does not exist in the market now and the insurer’s figure was based on a desktop review and estimate from the quantity surveyor, who provided insufficient explanation for the replacement calculation.

“Given the original structure is non-existent in the market, the full insurable value of the structure would depend on the type of construction of a similar shed, the materials to be used and the current applicable building codes and standards,” AFCA said.

The insurer argued two repair quotes received by the complainant showed repairs alone exceeded or fell just under the replacement sum insured.

But AFCA says this may be because of complexities in working around the original material and because that material does not exist in the market.

“There is no persuasive information showing the underinsurance clause applies,” it said.

AFCA says it is fair for the insurer to pay the full sum of $300,000, accounting for the repair quote of $251,646, which was more than a year old, and an uplift.

The insurer must also assess liability for additional damage when make-safe plastic sheeting was displaced by wind and water damaged a fuse box, with the amount to fall outside the policy obligations.

The insurer has already offered $4000 compensation for non-financial loss and is not required to increase a rental loss offer.

The decision is available here.