The Australian Financial Complaints Authority says Insurance Manufacturers of Australia must pay more than $740,000 to storm claimants – even though the damaged property’s sum insured was set at $400,000.

The authority says this is fair because “the insurer’s claim mismanagement is the main cause of the significant damage to the home” and therefore “it is not entitled to limit its liability based on the policy terms”.

The complainants filed a claim after water entered their home through the roof on December 2 2021. The insurer sent a builder, referred to as UB, who appointed a subcontractor to carry out make-safe repairs including “silicone and roofing screws secured to areas of impact”.

UB said the damage had been caused by water pooling on the roof sheeting, which was under the minimum required pitch.

On January 7 2022, the property was hit by a second storm that caused significantly more damage and large volumes of water ingress. Repairers who attended raised concerns over the previous make-safe work, saying the “silicone work had failed, resulting in stormwater travelling up and under the flashing”. The home also sustained increased mould damage after insurer-appointed workers removed drying equipment, despite the complainants warning some areas were still wet.

Insurance Manufacturers of Australia initially said it would deny the claim after relying on UB’s assessment that the roof was defective. But after the claimants disputed this, the insurer appointed a second builder, who advised the storm was the cause of the damage and its severity “meant any pre-existing issues with the roof had not contributed”.

The insurer reversed its decision and agreed to cover the claim and the additional damage caused by the second storm. However, it limited its liability to the sum insured, which was $400,000, and denied it had negligently handled the claim.  

The complainants challenged the insurer’s decision, saying its mismanagement led to the home being wrecked by the second storm and the subsequent mould.  

They said the first claim should never have been denied and sought for the insurer to cover the total loss, providing a $731,977 quote to reinstate the property.

The complaints authority agrees the insurer’s claim mismanagement was the “primary cause of the major damage to the home”.  It says the insurer must pay the full cost of reinstatement as outlined by the complainants’ quotes, which it says are “actionable”. 

The ruling also requires the insurer to pay $10,800 non-financial loss compensation (the maximum $5400 for each complainant), as it had previously offered.  

Insurance Manufacturers of Australia is a joint venture between IAG and RACV and issues insurance under the RACV brand. 

Click here for the ruling.