A farm policyholder will be covered for damage caused by a tenant who used the property to produce and store drugs, after an ombudsman overruled the insurer’s claim denial.

The policy said the complainant was insured for “malicious acts”, but not for “damage intentionally caused by a tenant”.

QBE argued the tenant “intentionally used, manufactured and stored the illicit substances” and that “accordingly, the damages arose from the intentional acts of the tenant”.

But the complainant said while the malicious act – making drugs – was intentional, the damage to the property was “not done on purpose”. 

The insurer said that if it accepted the complainant’s position, then the tenant caused the damage accidentally, and accidental damage was not covered.

Accident was defined in the policy as “an incident that is unforeseen and unintended and that causes loss or damage”.

But the Australian Financial Complaints Authority has ruled that the loss is covered.

“I accept the tenant likely intended to manufacture drugs, and in doing so, cause harm, injury or suffering to others,” the ruling states.

“However, I do not accept this means the tenant intended to cause harm or damage to the property.

“The damage to the property was merely a consequence of the tenant’s drug production and storage (being the malicious act). 

“I therefore accept the complainant’s position that the tenant did not intend to damage the property.”

AFCA does not accept the insurer’s position that if the damage was unintended, it was accidental.

A previous scope of works put the cost of cleaning the property at $35,606, but AFCA says some necessary repairs were not included. It has ordered QBE to obtain a scope of works for the repairs and settle the claim. QBE must also cover loss of rent.

Click here to read the ruling in full.