A woman whose valuable art collection was destroyed when a bushfire changed direction and unexpectedly burnt down a property she had taken the paintings to for safekeeping has won a claim dispute.

Insurer IAG was instructed by the Australian Financial Complaints Authority (AFCA) to pay her the current value of the art works up to the policy limit of $20,000.

IAG had declined the claim on the basis the policy excluded cover for valuable contents "away from [the] home". However, AFCA said the removal of the painting was “necessary to preserve property”.

This overrode the "away from home" exclusion, as insurers are not allowed to deny claims by reason of such prudent behaviour. AFCA also said it was “worth noting” that the policy stipulated the woman had the responsibility to "do everything reasonable" to prevent further loss or damage to her home and contents.

“I am satisfied the complainant acted entirely reasonably in removing the artwork from her home when she evacuated herself,” the AFCA ombudsman said.

“Indeed, to have left valuable art in an unoccupied house at that particular time may well have exposed it to other risks, such as theft.

“I consider it clear she believed the act of removing the artwork was necessary to preserve it and she was attempting to mitigate her loss in an unpredictable, high-risk and potentially dangerous situation.”

The woman, who held a home and contents policy which covered fire, evacuated as bushfires threatened last year. She took her collection of nine art works and other valuables to her daughter’s home, which she had been told was in one of three areas which would be safe from the bushfires.

Ironically, the bushfire suddenly changed direction while she and her daughter were briefly out of the home and hit that suburb. The home and everything in it, including all the artwork, was lost.

The damage to the woman’s own home that she had evacuated was limited to smoke and soot.

“If the artworks had been left in the insured home they … would have been able to be cleaned/restored,” AFCA said.

IAG made a goodwill offer of $3300 - the amount quoted by a restorer to clean the artwork had it been left in situ at the insured home.

The woman declined this, estimating a total artwork value of $40,250, with one of the individual artworks alone valued in 1980 at $35,000. However, the terms of her policy limited settlement for any one item to $10,000 unless it was individually specified, which was not the case.

“On that basis, the insurer’s liability for the artworks would total $15,350,” the ruling says.

AFCA said the Insurance Contracts Act 1984 “assists the complainant in this case” as it was fair to treat her removal of artwork from the home in the face of a bushfire threat as being necessary to preserve it.

“It is fair and appropriate in the circumstances to regard section 54(5) as applying. That means the insurer may not refuse to pay the claim by reason of the complainant’s ‘act’ of removing the artwork from her home,” AFCA’s ruling states. “The insurer is liable to the full extent of the claim for the destroyed artwork.”

It ordered the woman provide reasonable evidence of the current value of the artwork, such as receipts and invoices and valuations by qualified parties, and that IAG pay that sum in cash.

“On a strict application of the policy terms, I am satisfied the insurer would be entitled to decline the portion of the claim relating to the artwork, since it is agreed it was damaged while away from the insured address.

“However … it is necessary to consider … that if the ‘act’ was ‘necessary to preserve property’, then the insurer may not decline the claim by reason only of that act,” AFCA said.

See the full ruling here.