A business owner whose property was hit by a car during a police chase will be covered for only 35% of the repair bill after she was found to have underinsured by more than $1.4 million. 

The woman lodged a claim over $295,455 of damage to the business property, which was insured for $452,000.  

Insurer IAG appointed a surveyor, who said the property’s “recommended insured value” – accounting for building replacement costs, professional costs and debris removal – was $1,914,646. The policyholder did not dispute this valuation.  

An Australian Financial Complaints Authority panel notes the policy had a $50,000 additional benefit for debris removal, which it says should not count under the full insurable value, taking the latter figure to $1,864,646.

In handling the claim, IAG referred to its policy’s underinsurance clause, which stated it would cover a proportion of the damage if a property were underinsured. This proportion was determined as the sum insured divided by 80% of the full insurable value.

The resulting figure in this case is 30.3%.

The AFCA panel says the clause is valid. It notes the insurer offered more than the policy required due to calculation errors that were “to the complainant’s advantage”.

The panel says that offer – $104,038 – still stands and will cover 35.2% of the loss. IAG made previous offers of $114,498, $125,947 and $131,672 but these were rejected.

The panel has allowed the insurer’s current offer to stand.  

AFCA has not ruled on whether IAG is required to take recovery action against the car driver or the police, but says the underinsurance clause “applies regardless of how the damage occurred or who is liable for it ... If a dispute arises about the insurer’s recovery action (or its decision about whether to take recovery action), the complainant may lodge another AFCA complaint.”  

Click here for the ruling.