The Australian Financial Complaints Authority (AFCA) has upheld a decision by IAG to reject a claim for cracked walls and ceilings from a home and contents policyholder who says the damage was caused by an earthquake.

AFCA says the available information presented by both parties, including reports from engineers engaged to assess the damage, establishes the likely cause of the cracks was gradual deterioration, shrinkage or other earth movements.

While the complainants’ policy covers a series of listed events such as earthquake, there are several limitations and exclusions, AFCA says.

According to the ruling, various reports confirmed the house is about 50 years old and was built to minimal standards. The reports indicated there was pre-existing internal and external cracking and photographs of the damage show the internal cracks had been previously repaired prior to painting.

AFCA is also not convinced the magnitude-2 quake near Canberra in September 2019 could have led to the cracks in the walls, ceilings and cornices of the complainants’ house.

“While the assessment of damage to the property will depend on factors such as distance from the epicentre, soil etc, property damage is not usually seen in a magnitude-2 earthquake,” the AFCA ruling says.

“Given the information exchanged, I am satisfied that most likely the damage claimed was due to differential movement and not caused by the earthquake.

“The policy excludes damage due to gradual deterioration, shrinkage or other earth movement.

“In the circumstances the insurer is entitled to refuse payment of the claim as the complainants have not established a claim that falls within the terms of the policy.”

IAG had denied the claim, lodged in April last year, saying the damage is most likely due to long term differential movement and not caused by an earthquake or other insured events under the terms of the policy.

The engineer engaged by IAG provided a detailed report identifying previous repairs to cracking of the interior walls and exterior walls. The engineer concluded that the principal reason for the damage to the property is the original construction and not the earthquake.

IAG offered the complainants $1000 as an ex gratia payment on account of their long period of insurance with the insurer but this was rejected by them. AFCA says it is a fair offer from IAG in light of the circumstances.

One of the two engineers hired by the complainants concluded the movement and cracking in the walls of the home was related to the earthquake event rather than differential settlement in the footings.

The other engineer says given the movement observed in the internal walls, it appeared the ground movement of the earthquake has affected the interior walls.

But AFCA was not persuaded, ruling IAG is entitled to deny liability.

Click here for the ruling.