The owners of an artists’ studio that was destroyed by fire have won an increase to their payout after a dispute panel found their insurer did not provide a “like for like” cash settlement.

Hollard Insurance had acknowledged the extent of the damage, but conflict arose over the cost of rebuilding the multi-level studio with a mezzanine and a tower.

The insurer offered to settle the claim for $903,435 based on a scope of work from its expert, referred to as AA, on July 15 2022, plus an undated quote from another expert.  

But the claimants said Hollard’s scope of work was incomplete, did not use replicable design and floor materials, and did not satisfy energy and fire safety standards.

The policyholders preferred a March 2022 quote from an expert, referred to as AC, for $1.37 million. AC updated the scope of work in April last year, quoting $1.49 million.

The owners said AC’s work was more appropriate, noting it included material used in the original studio and provided “accurate calculations of dimensions of the original property”. 

Hollard said the design was not in line with planning regulations because it would have four elements that would mean it was considered a dwelling: a kitchen sink; a place to prepare food; a bath or shower; and a sanitation area. The insurer provided communication from a planning department that advised the lot was limited to one dwelling, which was already in place.

The Australian Financial Complaints Authority (AFCA) dispute panel agrees the studio will have to be rebuilt without one of these elements.

But it says Hollard’s settlement did not provide a “like for like” replacement of the damaged studio. It says AC’s review of the insurer’s scope of work shows it provided brief descriptions of fixtures and fittings that “made accurate estimates impossible” and allowed fewer square metres for the studio. 

The panel says the insurer had “ample time” to review AC’s report but provided no response to the identified differences.

The panel’s decision requires Hollard to increase its settlement by the AFCA limit of $542,500.

It acknowledges the total paid may exceed the sum insured but says this “would have been avoided had the insurer settled the claim reasonably and fairly”.

“The panel does not accept it is fair that any payment be subject to the sum insured. This is because if the insurer had agreed to settle the claim based on AC’s first scope of works, it is likely the complainants would not be left out-of-pocket.

“Instead, due to the insurer’s continued delays in settling the claim, the complainants’ claim has now exceeded the sum insured due to the increased costs and materials.”  

The authority acknowledges the parties suffered a relationship breakdown and says a cash settlement is appropriate, given the complexity of the rebuild.

The insurer must also contribute $5000 to the cost of the complainants’ professional fees and pay $3000 for non-financial losses due to delays in the claims handling.

“The complainants were dissatisfied with the insurer’s timeliness, competence, communication and fairness,” the panel said.

“They described the impact of the insurer’s conduct on their mental wellbeing and highlighted they were stressed to the extent they requested all communication in writing.”  

Click here for the ruling.