The dispute authority has blocked an insurer from cash settling a water damage claim after its offer was found to be unfair, causing its customer a “high degree of stress”.

Auto & General Services – which initially partially denied the claim, prompting an earlier dispute before the ombudsman – said it could not complete repair work after a pipe burst in the claimant’s bathroom. 

It relied on a report from a builder who did not attend the property but said repairs could not be done because it would involve replacing flooring in undamaged parts of the home.

Auto & General said its policy did not respond to undamaged property.  

The insurer offered to cash settle for the builder’s quoted amount of $16,990, plus a 20% contingency uplift. It also offered $2186 for floor damage.  

The claimant said the offer was inadequate, and she provided two builder quotes showing the payout was lower than the cost of repairs.

She argued the insurer had not thoroughly investigated the claim to identify what work was required, and said mould issues had arisen due to a lack of repairs.

She said the mould rendered the property unliveable and caused her newborn baby to have respiratory problems.

The Australian Financial Complaints Authority says the insurer noted it could not “provide a consistent finish” due to flooring spreading into undamaged areas. It also acknowledged its builder had not visited the site and “cannot be certain that all works have been accounted for”.  

It says the insurer accepted liability for the damaged property, including the bathroom flooring, and that to restore it, all the flooring would have to be replaced.

“I understand that once the flooring is ripped up, it damages the flooring in the other areas,” an AFCA ombudsman said. “On that basis, I would consider the damaged area extends beyond the room to the other areas affected.

“This means the insurer is to replace the entire floor because of the layout of the property and the particular circumstances of this flooring.”  

AFCA adds it is unfair to cash settle mould remediation costs, and notes the insurer relied on the complainant’s specialist for the assessment and repair quote.  

The complainant has also been awarded a maximum $6300 in compensation for non-financial loss.

AFCA says she went “through a high degree of stress and inconvenience to get the claimable loss fairly repaired by the insurer.

“She has made two AFCA complaints, engaged multiple contractors and lived in a mould-affected property with her family for a prolonged period.

“The insurer also placed the complainant and her family in a highly stressful situation by ceasing the temporary accommodation benefit payment before the property is safe to live in.

“By doing so, the insurer has placed the complainant in a highly vulnerable position, increasing the stress the complainant is experiencing.”  

Auto & General must extend its temporary accommodation expenses and pay for the claimant’s expert assessment costs.

Click here for the ruling.