A dispute hearing has determined Westpac General Insurance was wrong to deny a home and contents claim payout of almost $32,000 after thieves ransacked the property and ripped out newly fitted appliances.

The home was subject to a contract of sale which had not yet settled and Westpac argued the legal responsibility for insuring the property fell on the buyer.

The homeowner reported the burglary to Westpac in September last year, two weeks after she signed an agreement to sell the property. The settlement date was mid December.

Thieves entered the home, which had recently been built, and stole the cooktop, dishwasher, sink and hot water unit. Significant damage was caused to the home during removal of the appliances and from forcible entry.

The homeowner believed it was her responsibility to hand the property over "as seen" by the buyer and so she paid tens of thousands to rectify the damage.

Westpac only agreed to cover the theft of sunglasses, a vacuum cleaner and wall art, which had also been taken during the burglary, but denied liability for damage to the property and replacement of the appliances.

The contract of sale stated it was the responsibility of the purchaser to insure the home as soon as the contract was signed and outlined the buyer would be expected to meet the costs of any repairs or loss for any electrical or structural problems that occurred after the date of the contract.

Westpac said this meant the insurance policy held by the woman was not valid at the time of the loss because the contract of sale meant she was no longer liable for the property and by extension, neither was the insurer.

The Australian Financial Complaints Authority (AFCA) disagreed. It ruled Westpac was not a party to the contract of sale and therefore “cannot rely on the terms of that contract to deny the claim”.

“The contract of sale does not alter the rights and obligations of the insurer or complainant under the contract of insurance between them, and which was still in place at the time of the break-in and loss,” AFCA said. The sale contract required the seller to reasonably maintain the property until settlement, it added.

It ordered Westpac pay $27,750 for the cost of replacing appliances and repairing damage caused by their removal, and $4121 to replace the front door and repair damage from forcible entry.

“The complainant was still occasionally sleeping in the property and she clearly still retained possession and a legal interest in it. In addition, she still had various contents items at the property, for which the insurer did accept liability,” AFCA said.

“I do not consider it would be fair in the circumstances for the insurer to deny cover when the complainant has acted in good faith and on the basis that she was covered by a current policy of insurance,” the ombudsman said.

An addendum to the sale contract confirmed the seller’s obligation to ensure all fixtures and fittings were in working order as per the initial inspection. The contract of sale was also subject to finance approval so the woman still had a “legal and insurable interest” in the property, AFCA said.

“Even though the home was the subject of a contract of sale, that sale was not yet unconditional or settled, the ownership of the property had not yet changed, and the evidence does not show there was any material alteration in the use or occupation of the property as a result of the anticipated sale,” the ruling says.

Westpac’s home and contents policy stated the woman should notify Westpac if the property were to be sold and did not cover any loss or damage that is “caused by or arises from selling,” but AFCA said it was not satisfied the woman’s “act of entering into the contract of sale caused or contributed to the loss”.

“The insurer has not explained what it would have done had it known the home was on the market and a contract of sale signed, by, for example, imposing additional conditions, increasing the premium or refusing further cover. That means it has not shown it has suffered any prejudice,” AFCA said.

Westpac’s underwriting guidelines were framed in the context of a home purchaser seeking cover and “silent” as to how they applied in the woman’s case, where an existing customer was seeking to sell their home, AFCA said.

See the full ruling here.