A farm owner has lost their challenge to have their insurer pay for the reconstruction of several degraded buildings after a dispute decision found the repairs constituted upgrades not covered by the relevant policy. 

The complainant lodged a claim after the employees’ quarters building at their farm had been damaged by a storm in June 2021.  

HDI Global Specialty SE acknowledged the damage had been “minor” and agreed to cover repair and replacement costs to parts of the roof and veranda, as well as the removal of asbestos.  

However, the claimant disputed the insurer’s offer and referred to a report from their engineer, which recommended that two buildings and the veranda be demolished and rebuilt. The complainant also provided a quote for the repairs amounting to $112,000. 

The engineer reported that the event caused severe damage to the building’s southern ends, leading to parts of the veranda collapsing. It concluded that it would not have been practical to repair the damage because of the building’s age, pre-existing condition and “non-compliant” construction.  

An insurer-appointed building consultant reported that the veranda collapse was due to wood rot and that the building had significant construction issues. 

The consultant says it was “surprising” that the building had lasted as long as it did and agreed that demolition was warranted because of the “advanced state of degradation”, which had been unrelated to the storm event. 

The Australian Financial Complaints Authority (AFCA) panel acknowledged that the farm insurance policy stipulates it would cover repairs that returned damaged buildings “to the same condition and extent that it was new”. 

But AFCA said it would be unfair for the insurer to pay for the demolition and reconstruction costs because the storm had not damaged these parts of the property and would constitute upgrades beyond the building’s original state.  

“Parts of the building need to be demolished and rebuilt,” AFCA said. 

“However, this is because of the building’s poor construction, age, and lack of maintenance. It is not because of any storm damage.” 

“The policy does not cover the cost of upgrading the building to a better condition than when it was new.” 

The panel agreed that HDI Global Specialty SE’s offer to settle the claim for $11,220, as quoted by its building consultant, had been fair to repair the damage caused by the storm. However, it required the insurer to attach a 10% contingency due to the risk transfer associated with the cash settlement.  

Click here for the ruling.