An insurer has been told its offer to cash settle a house fire claim is “insufficient” for the insureds to complete the repairs and to cover any variations that may occur once works commence.

The Australian Financial Complaints Authority (AFCA) says in a dispute ruling that Suncorp must act “fairly” and ensure its offer is enough to repair the claimed damage even if the policy terms are “clear and unambiguous” in providing the insurer with a cash settlement option.

Suncorp had opted to cash settle after a breakdown in relationship with the complainants – two brothers who made the claim in September 2018 on their building and contents policy – over differences in their assessments of the repairs needed and what it would cost.

The complainants had raised concerns regarding the insurer’s assessment of its liability and whether it had adequately identified required repairs during its damage assessments.

“While the policy provides the insurer may cash settle the claim, when doing so it must act fairly and ensure the cash settlement is sufficient to repair the claimed damage,” AFCA says in the ruling.

Suncorp had initially assessed its liability at $92,896.97, which did not include a contingency allowance as it was willing to undertake the repairs, but the complainants disputed the figure and provided a quote of $129,007.71 obtained from their builder.

AFCA says based on the evidence provided, it assessed the insurer’s liability at $116,987.30. The ombudsman added a 20% contingency allowance of $23,397.46, taking the total to $140,384.76.

The ombudsman says the insurer is to make a payment of $38,198.09 plus interest from October 2020 until settlement, if the complainants accept the determination. AFCA arrived at the figure after taking into account what the insurer has paid to cash settle the claim.

“Although a cash offer was made and paid to the complainants…the offer was insufficient and made no allowance for any contingency,” AFCA says.

“Once a decision is made to cash settle the claim, the insurer must ensure the cash settlement is sufficient to enable the complainant to complete repairs and consider any contingencies and variations which may occur once repairs commence.”

The insurer had made the $92,896.97 payment in October 2020 because of continued disagreements over the scope of works, builders and inability to finalise matters in July that year.

It later increased its offer to include an additional 10% payment of of $9289.70 for contingencies in June last year following an escalation of the dispute to AFCA, meaning a total of $102,186.67 has been paid to the complainants. AFCA had queried the insurer about a contingency allowance.

But the complainants remain dissatisfied and believe the insurer’s offer should be based on the quote they have obtained from their builder, whose first assessment in January 2021 had put the cost of repairs at $129,007.70. The builder provided a second quote a few months later in June, at $130,628.35.

In recent correspondence, the builder told the complainants to expect a revised quotation of $145,000 to $155,000 for the same repairs because materials and labour costs have increased.

However Suncorp says it will not be taking any price increases in the last 12 months into consideration as the claim was settled in October 2020 and the complainants did not arrange for the repairs to be done.

The insurer says it had allowed for price increases, with the contingency that was provided as part of the cash settlement.

Click here for the ruling.