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Showing the way: AFCA rulings shine light on key issues

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The Daily news service provided by insuranceNEWS.com.au often summarises dispute rulings laid down by the Australian Financial Complaints Authority (AFCA).

These decisions can give a fascinating insight into how the complaints resolution body deals with disputes – most often about denied claims.

Industry will know by now that AFCA sometimes favours fairness over black-letter law, but insurance professionals can also learn about how the ombudsman views certain wordings and behaviours.

Here’s a summary of some of the most interesting rulings we’ve covered in the last month or so.

Drug use by tenants isn’t covered under “malicious damage”

A landlord lost a claim dispute with Suncorp after her tenants smoked methamphetamine, causing dangerous chemical contamination of the walls, ceilings and other surfaces.

The property owner held landlord insurance and lodged a claim for loss of rent and the cost of rectifying the uninhabitable property after the tenants vacated.

The house required extensive repairs, including replacement of the air-conditioning unit and decontamination of the walls, ceilings, windows and window frames and re-painting.

Suncorp accepted some damage was malicious, agreeing to cover holes kicked or punched in walls, cracked doors and the removal of carpet by the tenant, as well as $2800 for loss of rent, which was the maximum under the policy. Suncorp also identified theft and broken glass as areas it was liable if the woman were to claim.

However, it denied the balance of her claim on the basis the contamination was caused by methamphetamine use, rather than production. This meant it was not "malicious" under the terms of the policy, the insurer said.

AFCA agreed Suncorp was entitled to deny liability for contamination remediation, associated damage and removal of debris.

“Malice involves an element of intent and I do not consider it has been shown they used the drug with the intention of causing damage,” the ruling states.

Optional cover was available for accidental damage by tenants or their guests, however the landlord did not select that option.

In a similar ruling, AFCA upheld a decision by Commonwealth Insurance to decline a claim for fire damage at an investment property that was likely caused by electrical equipment installed by the tenant for cultivating cannabis.

AFCA said the insurer is entitled to reject the claim since the investment home insurance policy excludes illegal activities carried out by a tenant.

The loss would have been covered had the complainant taken up the optional cover available for malicious damage and theft by a tenant, but she did not.

See the methamphetamine ruling here, and click here for the cannabis ruling.

Death of a tenant is also not malicious damage

A landlord in Queensland who submitted an insurance claim for damage to a holiday unit after discovering a tenant’s decomposing body lost their dispute with Suncorp.

The landlord, who held a Suncorp investor home and contents insurance policy, said the damage was so severe and difficult to rectify that the unit was a total loss.

The police reported the death as "undetermined" and the landlord said murder or suicide could not be ruled out, which should fall within the policy’s “vandalism and malicious damage by tenants or their guests” coverage.

Suncorp declined the claim, saying the death was accidental and the landlord’s broker had not selected optional accidental cover.

AFCA ruled the damage was not covered and that Suncorp acted reasonably and fairly in assessing the claim.

“The available information suggests the tenant died of natural causes and the damage to the property that followed was accidental in that it was unintended and unexpected,” AFCA said.

“The only way the policy would cover the damage suffered by the complainant is the optional cover for 'accidental damage'. As this option was not taken by the complainant, the insurer is entitled to decline the claim.”

See the full ruling here.

Innocent non-disclosure is still non-disclosure, and some insurers don’t cover bankrupts

A domestic violence victim who inaccurately responded to questions about debt in her online application for car insurance lost a claim dispute with Hollard.

The woman, who was subject to a part 9 debt agreement under the Bankruptcy Act, said she made an honest mistake and sought that Hollard pay her car accident claim and that her insurance records be expunged.

AFCA denied both requests on the basis she had not accurately disclosed her financial status and Hollard would have declined to offer her cover at the outset had she answered accurately.

The woman said she made the agreement at a traumatic point in her life and did not understand the full consequences. She also did not realise the debt agreement was “part 9”.

AFCA and Hollard both accepted her mistake was “innocent,” but the ombudsman said the consequences of non-disclosure – even if unintended – were “that the insurer is entitled to decline the claim and cancel the policy”.

It’s not clear whether upcoming changes, which will replace the duty of disclosure with a duty to take reasonable care not to make a misrepresentation, would have assisted the complainant.

See the full ruling here.

A bad claims experience can result in compensation

A complainant whose claim for fire damage at his home went through “unreasonable” delays and took eight months to settle, causing him and his wife stress plus other mental health conditions, won his dispute with QBE.

AFCA ruled the insurer must pay the man $2750 in non-financial loss compensation for the duress suffered.

In his complaint to AFCA, the man said he was not satisfied with the way the insurer handled the claim after it was lodged in May last year.

While the claim was eventually processed and settled, he says delays and errors during the process, including in arranging suitable temporary accommodation, took a toll on the couple's health.

AFCA says the available information shows the insurer’s management of the claim was not to the level reasonably expected from a financial firm, especially in the circumstances relevant to this complaint.

“Given the circumstances of the claim and the complainants, I believe the insurer could and should have taken more care in the management of the various aspects of the claim,” AFCA said.

Click here for the ruling.

“Choice of repairer” options have limits

A Suncorp customer who insisted his vandalised car be sent to a repairer quoting more than $16,000 – almost twice that estimated by the insurer’s repairer – has lost a claim dispute.

Suncorp accepted the man’s claim in June last year, offering to authorise repairs to the car via its nominated repairer or to cash settle him for the amount the repairs would cost.

The motor policy provided the car owner an option to choose a preferred repairer, subject to certain terms and conditions.

The car owner had obtained a quote for $16,449 and requested to exercise his choice of repairer benefit.

Suncorp’s internal review of the man’s quote adjusted it to $8305. The insurer attempted to negotiate with the man’s chosen repairer who refused to lower the quote, which Suncorp considered unreasonable.

It obtained a second quote from a different authorised repairer. That business initially provided a quote for $14,421 but later agreed to repair the insured vehicle for $8656 – Suncorp’s assessment of what it should cost.

The man went to AFCA, saying Suncorp should authorise his chosen repairer instead of relying on its own quote and trying to impose an “unreasonable” labour rate to do the repair work.

But AFCA said Suncorp complied with the terms of its policy.

The Suncorp policy stated the insurer would “authorise the repairs if we agree your repairer’s quote is reasonable” or “pay you what it would have cost us to repair your car … determined by a quote from a repairer we choose”.

AFCA said the man was free to choose his own repairer but Suncorp was not obliged to pay more than what its preferred repairer quoted.

See the full ruling here.

Reckless driving can invalidate insurance

A driver estimated to have been travelling at 166kmh seconds before colliding with another vehicle in a 40kmh zone has lost his claim dispute with Suncorp.

AFCA upheld the decision by the insurer to refuse payment of the claim, ruling the man’s “recklessness” caused the crash and that it fell within his motor vehicle insurance policy’s exclusion relating to reckless acts.

A section of the policy contract reproduced in the AFCA ruling lists “driving at excessive speed” as an example of reckless acts, which is defined as “any intentional or reckless act by you, the driver of the car or by a person acting with your express or implied consent”.

AFCA says Suncorp has provided the necessary evidence such as forensic analysis to show why it could apply the exclusion.

The forensic vehicle examiner engaged by Suncorp says pre-crash data from the insured vehicle showed the man was travelling at 166kmh with the transmission in fifth gear at 2.5 seconds and about 100 metres prior to impact.

AFCA says it is reasonable to accept that the driver was aware of the speed he was travelling as he is experienced.

“I am satisfied the available information establishes on the balance of probabilities that [the driver] was driving recklessly at the time of the collision,” AFCA said.

The man and his wife, who are the co-insureds in the policy for the 2009 Holden Commodore Omega, disputed the speed at which the car was travelling when the collision happened. They say the roads were wet because of bad weather and that their son was in the car, making it highly improbable the man would drive at such excessive speed.

The man says he believed he was driving at 70kmh.

However AFCA was not persuaded by their counter arguments.

Click here for the ruling.