An RACQ Insurance policyholder who disagreed with the insurer’s proposed method of repair for her kitchen after it had been damaged by a water leak has won her case before the financial dispute resolution body.

The Australian Financial Complaints Authority (AFCA) ruled the insurer has to pay to replace all the kitchen cabinets, including those not affected by the leak, to ensure a “uniform appearance” of the area.

RACQ Insurance accepted the claim when it was lodged in November 2019. The household insurance policy issued to the complainant provided cover for a number of insured events such as leaks.

The policy provides a number of extra benefits, subject to any applicable limits including for matching repairs. An extract of the policy contract reproduced in the AFCA ruling states the insurer will “pay the costs to replace or match your undamaged property to create a uniform appearance when we repair your damaged property”.

But there is a $500 limit, and there are exclusions in other parts of the policy. The policy says if only part of the home is damaged or destroyed, it will pay only for the repair or rebuilding of the affected area.

RACQ Insurance says the policy is clear in saying it is not required to replace undamaged areas of the property, and its limit for undamaged sections of the property is $500.

It offered the complainant $8,825.41 plus $500 in matching benefit as a cash settlement. But the complainant declined to accept it and provided a quotation she had obtained, putting the estimated repair bill at $13,985.

RACQ says its quote, provided by a builder it hired to look at the scope of works, covers all accepted damage under the claim.

The insurer acknowledges there may be undamaged kitchen cabinetry that will not match the new cabinetry. However, it says the policy excludes consequential loss of this nature.

AFCA did not accept the insurer's reasoning, ruling its proposed offer to the complainant “would fall short of the policy purpose” as outlined in the contract.

“The complainant is concerned the insurer’s settlement would result in mis-matched kitchen cabinets,” AFCA ruled. “The insurer has not provided evidence to show its settlement would not result in an outcome that is manifestly inadequate.

“This may include using new kitchen cabinets that are strikingly discordant with the existing cabinets in the area affected.

“The purpose of the policy is to cover the complainant for loss or damage caused by an insured event covered under the policy.

“A reasonable person would interpret this to mean being restored as close as practicable to the position they were in before the insured event.”

Click here for the ruling.