A Victorian homeowner who was told that his earthquake damage claim would be covered before his insurer reversed its decision has lost his claims dispute. 

The insured lodged the claim on September 22 2021, saying an earthquake had damaged a section of the property’s roof.

Insurance Manufacturers of Australia appointed a builder, referred to as UBS, who observed a “slight but significant” dip in part of the roof which they attributed to dislodgement in the roof’s support bracing. 

UBS reported that the damage was “consistent with sudden and unexpected ground movement” and informed the property owner that the roof could be repaired for about $700. The builder, as an agent of the insurer, was able to accept the claim because the cost had been low. The claimant agreed to pay the $500 policy excess for the repairs.

However, after further inspections, UBS uncovered more damage to the home that was not linked to the earthquake, prompting the insurer to seek additional reports on the damage.

A second builder’s report from November 2021 noted that the roof’s timber members had sagged over time, saying that it was “unclear” if the earthquake contributed to the observed damage.

The insurer also engaged with an engineer in February 2022 who agreed that the timber members had been affected by a permanent sag and reported that the section below the dip appeared to have been a “weak point” of the roof’s structure. The engineer says the possibility that the tremor could have caused the reported damage was “highly improbable”.

Insurance Manufacturers of Australia informed the homeowner that the claim would be denied in June last year. 

The Australian Financial Complaints Authority (AFCA) agreed that the insurer had the right to change its decision on the claim after new evidence had been presented and allowed the claim denial.

But AFCA required the insurer, which had admitted that the policyholder had a poor claims experience, to reimburse the complainant $1500 for the mishandled claim and delays in its decision - which took over eight months - and refund the $500 excess that had been paid. 

“The insurer’s builder initially said the claim would be accepted. This does not mean the insurer is bound to accept the claim,” AFCA said.

“However, it should pay compensation for the stress caused by its builder’s error and by its own delay in processing the claim.”

Click here for the ruling.