A homeowner who sought cover for a house fire that was caused by his son’s illegal cannabis cultivation has won his dispute against his insurer’s claim denial. 

The insured lodged the claim on October 27 last year after the property was devastated by a fire caused by hydroponic equipment that had been used to grow cannabis. Youi was asked to settle the claim for the sum insured, totalling $370,065. 

Youi declined the claim after relying on exclusions for losses relating to “illegal activity”, as well as the complainant’s failure to regularly inspect the property every six months and keep a record of the inspections.  

The claimant’s son, referred to as SH, admitted that he had been illegally growing the drug in his bedroom but said his father had not been aware of his activities. 

The homeowner acknowledged that he had caught SH cultivating cannabis at the property four years ago, but had asked his son to stop and was under the impression that he had complied.

SH says he had stopped then but had “hoodwinked” his father and later recommenced the illegal actions. 

The Australian Financial Complaints Authority (AFCA) panel accepted that the insurer could not rely on the “illegal activity” exclusion, given that the complainant did not appear to be aware of or give permission to his son’s actions.  

The panel says there was “no evidence to impugn the credibility of the complainant,” and that it was fair to consider that SH had deceived him.  

The complainant also challenged the insurer’s application of the “inspection” exclusion, noting that he attended the property approximately every eight to ten weeks to do repairs as well as visit his son. He says during these visits, he had no impression that his son was cultivating cannabis.  

SH says he only began to grow the cannabis about three months before the fire and had otherwise packed and hidden his equipment underneath the house. 

AFCA acknowledged Youi’s contention that the policyholder had not completed “formalised inspections” but says this would not have added any additional value towards the detection of the illegal activity as it would have allowed SH time to hide the drug set-up.

“The panel considers it likely that, had the complainant announced a “formal” inspection of the property, he would have been required to provide notice to SH as required by state laws,” AFCA said. 

“This would have served to warn SH to dismantle and hide his cultivation system for a short period, only to recommence growing cannabis after the “formal” inspection was concluded, and the complainant had left the property.” 

“Indeed, the complainant’s visits to the property every eight to 10 weeks or so (sometimes lasting up to several hours) would likely be far more effective in detecting illegal activity compared to a more “formal” inspection regime which requires notice.” 

The panel says it was “not concerned” about the lack of documentation of the insured’s visits to the property because there had been no policy requirement for him to report his inspections to the insurer.  

The ruling required Youi to accept the claim and handle it within the terms and conditions of the policy. 

Click here for the ruling.