IAG has been ordered to review a decision denying a car owner’s claim and to compensate him after failing to identify his vulnerable status.

The man lodged the motor policy claim on March 9 last year after his vehicle became stuck in floodwater while driving in remote NT. The claimant said he was taking a friend to collect her car when they entered water that overwhelmed the vehicle.

The driver told the insurer a significant amount of water entered the Holden Commodore – insured for an agreed value of $32,000 – causing its engine and electronics to stop working. He said he and his passenger had to push it out of the water, which took more than 15 minutes.

IAG had the car towed to Darwin to be inspected by a mechanic, who reported in June that there was no water damage to the engine or interior but there were traces of water in its oil.    

The insurer received a report from another mechanic who found no evidence of water in the air filters or throttle but observed rust corrosion consistent with water contamination.  

IAG’s assessor then expressed concern about the claim’s validity, noting it was made only six days after the policy was purchased.    

It referred the matter to its fraud investigation team, which interviewed the complainant and the passenger. The insurer requested that the man provide several documents, including mobile phone records, a copy of the car purchase contract, service history and other information.    

The Australian Financial Complaints Authority heard the claimant supplied all requested items except for bank statements, while mobile phone records were provided in an incorrect format.  

The insurer argued it could continue its investigation only once the policyholder met its request and said the claim would remain declined unless more information was provided.  

The complaints authority has challenged IAG’s decision, saying the claimant provided enough evidence and that he co-operated with its investigation despite the missing documents.  

In its dispute ruling, it says the insurer’s two expert reports “appear consistent with the events the complainant describes”.  

“There is evidence of water having entered the vehicle given the engine has seized, there is corrosion present in all cylinders, and surface rust,” the authority said.

“In addition, all cylinder bores were found to have rust corrosion consistent with water contamination. The oil filter was also full of milky oil, suggesting water contamination.”  

The authority has criticised the insurer’s failure to identify the claimant as a vulnerable customer, given he lives in a remote location and was experiencing financial hardship and health issues, including a broken leg.  

It says the insurer’s mismanagement of the claim has caused delays and unnecessary stress to the complainant. It requires IAG to pay the maximum penalty for non-financial losses, $5400.    

“The insurer has not properly investigated the claim if it intended to do so, or assessed the information it currently holds on file to make a claim decision,” the authority said. “Instead, the insurer has made unreasonable requests for information.

“In the circumstances, the insurer should make a claim decision and compensate the complainant for the stress and inconvenience it has caused him.” 

Click here for the ruling.