Adroit Insurance & Risk has won a dispute over the amount paid for animal skins damaged by water after the claim total was reduced due to underinsurance clauses.

The Australian Financial Complaints Authority (AFCA) also rejected an argument that the skins should be covered for the price at which they would sell, rather than the wholesale value.

The water problem damaged 4000 skins, which the insurer says had a value of $55,720 based on a wholesale price of $13.93. The figure was calculated after an invoice showed that one skin was sold for $21.10.

“It would have been useful to have an itemised record of the wholesale purchase price of each skin,”AFCA says. “However, in the absence of this, the panel is required to determine what value is the fairest representation of the damaged skins.”

The insurer then reduced its liability for the skins to $23,619.71 due to a policy clause which says that if property is underinsured then claim payments will also be proportionately reduced.

The product disclosure statement highlighted that a claim would be paid out at the same proportion as the sum insured relative to 80% of the total property value.

AFCA says a stocktake by the broker records a total property value of $796,940, with 80% of that amount giving a reduction to $637,552.

The property insured sum was $270,237, or 42.39% of the $637,552 reduced total, meaning the skins claim liability accepted was also wound back to the same percentage level.

The policyholder complained the broker obtained insurance not fit for purpose and as a result was liable for any losses not covered by the policy.

But Adroit provided a letter warning against underinsurance and recommending that stock be covered for replacement values.

“The panel accepts the broker inspected the premise, formed a view that the complainant had underinsured his business and provided verbal and written advice to that effect,” AFCA says.

“It appears the complainant was aware of the value of his business and selected a level of insurance while fully informed of the risks, terms and conditions.”

AFCA says a final settlement of $30,500, which included costs for the removal and disposal of the damaged skins, was increased from $28,834.73 after negotiations by the broker with the insurer on behalf of the complainant.

“The Panel is satisfied that the broker has discharged its professional duty by acting with due care, skill and diligence,” the ruling says. “As such, any loss the complainant continues to claim is the result of the complainant’s own decisions regarding his insurance and not negligence on the part of his broker.”

The decision is available here.