Allianz is reviewing a dispute ruling after it was ordered to pay a claim for a car engine fire that the insurer considered to be mechanical failure.

The insured lodged a claim in May 2022 after his 2016 BMW 33E was badly damaged, but it was denied.

The man’s comprehensive policy covered accidental damage, and defined an accident as “a sudden, violent, external, unusual and identifiable specific event which happens unexpectedly and is unintended by the insured person”.

Allianz said there were no signs of impact and the damage was caused by an electrical fire around the engine bay area “as a result of wear and tear to the fuel line/injector leaking onto electrical wiring of the vehicle, which is a mechanical failure”.

The insured said the policy does not require evidence of impact or a collision, and the engine fire fits the definition of accidental damage.

The Australian Financial Complaints Authority says the fire was an accident that was not intended or expected.

“The description of the event shows the engine fire was sudden and identifiable, because the complainant had to pull over suddenly to attend to it (which he did),” the ruling says.

“An engine fire, by its very nature, is violent and unusual.”

AFCA says the fire was “external to the engine” and the complainant has shown he suffered a loss that is covered under the policy.

It says the insurer has not shown which exclusions apply in the case.

The product disclosure statement requires insureds to keep their vehicles “well maintained and in a roadworthy condition”, but AFCA says this does not assist the insurer.

“Even if I accept the cause of the injector leak was wear and tear, or mechanical failure, I cannot conclude the reason for the wear and tear/mechanical failure was lack of maintenance,” the ombudsman said.

AFCA has ordered Allianz to accept the claim as a total loss and pay the agreed value of $43,100, minus any excess. It must also pay $500 in compensation because the claim was not handled in a “timely manner”.

insuranceNEWS.com.au understands insurers do not usually consider mechanical faults to be insured events, and an Allianz spokesman says it is considering the broader implications of the ruling. “We’re reviewing the decision to understand if there are implications for current policy wordings,” he said.

Click here to read the AFCA ruling.