Tokio Marine & Nichido Fire Insurance must pay a commercial claim for hail damage to the roof of a property, despite the claimant’s failure to properly disclose the property’s age and condition.

The Australian Financial Complaints Authority (AFCA) said the insurer had failed to demonstrate how the innocent non-disclosure by the claimant had “prejudiced” its position.

It supported the complainant’s position that Tokio Marine had not proved it was “prejudiced” by the missing details when it decided to issue the property protection policy in April 2018, months before the hailstorm that caused the damage.

The dispute came before AFCA after the complainant disagreed with the insurer’s reasons for declining its claim. Tokio Marine said the complainant did not disclose the correct age and condition of the property at the time of the policy’s inception, and had these details been provided the policy would not have been issued.

But AFCA said it was not convinced by the supporting submissions the insurer made to the panel overseeing the dispute.

“The insurer it is not entitled to refuse the claim or reduce its liability, as the panel is not satisfied that the insurer was prejudiced by the non-disclosure/misrepresentation,” AFCA says in its ruling.

“The insurer has not established it has suffered any prejudice because of the innocent non-disclosure/misrepresentation.”

AFCA made its decision based on section 28(3) of the Insurance Act. This section of the Act states where there has been an innocent non-disclosure/misrepresentation, an insurer cannot refuse to pay the claim, but is entitled to reduce its liability to the extent that it has been prejudiced.

In this particular dispute, AFAC says the insurer has not established that it suffered any prejudice because of the innocent non-disclosure/misrepresentation.

“The insurer’s latest submissions argue that if the correct age had been completed, further investigations would have been conducted,” AFCA says. “It does not say that the property would have been uninsurable.

“Further, the submission states that if the property was found not to be in good condition, it would not have offered cover. The available information indicates that the property was well maintained and in average to good condition.”

According to the AFCA ruling, the policy was arranged by an insurance broker who incorrectly stated the property was built in 1970. The property was actually constructed in or around 1925, based on information provided by the complainant.

A hailstorm struck the property on October 18 2018, damaging the roof of the main building. A repair quote estimated the total damage at $429,000 with 25-30% of it caused by the hailstorm.

Tokio Marine must accordingly pay for 30% of the cost to replace the hail-damaged portion of the roof as sought by the complainant, AFCA says.

This works out to $128,870. A further 10% interest payment of $12,870 brings the settlement payment to $141,570.

AFCA says the 10% interest allowance represents a transfer of risk to the complainant, who will be responsible for the repair process.

Editor’s note: The use of the word “prejudice” has varying meanings in legal terms. In this case the word basically implies that the claimant’s error placed the insurer in a position it would not otherwise have been. An error that is determined to not have been prejudicial will typically not be considered by a court to be reversible.

Click here for the AFCA ruling.