An insurer has been told to honour a fire claim from a policyholder who died of cancer two years ago. 

The insurer declined the January 2022 claim for damage to the man’s metal shed-like home in outback NSW, saying he made fraudulent misrepresentations about the property’s status and functionality. 

The policyholder, who was interviewed by the insurer’s investigators while medicated for the advanced disease, died about five months after lodging the claim and a complaint was pursued on behalf of his estate by his executor.

Now the Australian Financial Complaints Authority has ruled IAG did not show the complainant breached his disclosure obligations.

“Even if there had been a breach, the insurer has not satisfactorily demonstrated the breach led to it renewing the policy when it would otherwise not have done so,” the authority’s ruling said. “It is fair that the insurer accepts the claim.”

IAG provided no declaration from its underwriter to show it would not have incepted or renewed the policy, AFCA says.

“Despite being warned that an adverse inference could be drawn from its failure to provide one, the insurer has not submitted a declaration ... stating how its underwriting guidelines would have been applied in this case.”

IAG said the policyholder fraudulently misrepresented the property’s condition when the policy was incepted in October 2019, by declaring it watertight, structurally sound, secure and well-maintained with a functional kitchen and bathroom, and stating it was built about 2019.    

Its policy terms stated: “We don’t insure buildings under initial construction.” 

But AFCA says that by the relevant renewal date in October 2021, construction was complete and the home had been occupied for more than a year. It met code and was "structurally sound, secure and well maintained”.

“Each renewal gave rise to a new contract of insurance,” the ombudsman said.

“This means the applicable disclosure obligations are those imposed by the [Insurance Contracts Act] as at October 23 2021.” 

AFCA says it is “not comfortably satisfied” the complainant engaged in fraud. It says that for a misrepresentation to be fraud, which is a serious allegation, it must be made knowingly or recklessly. 

“Even if I made a finding the complainant breached a disclosure duty (and I have not done so) the insurer has not provided sufficient evidence to show it would not have entered into the 2021-22 policy but for the alleged breach.”

The ombudsman also says neither the contract of insurance nor the product disclosure statement contained any information “about the duty to take reasonable care not to make a misrepresentation, any predecessor disclosure duty, or the consequences of breaching any such duties”. 

See the ruling here.

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