Agricultural insurer Achmea must indemnify a claim after fire destroyed 1380 bales of hay, despite the items not being listed among insured contents in a farm policy sold to a client.

The Australian Financial Complaints Authority (AFCA) says the insurer is liable for the loss as its risk specialist had failed to arrange “like-for-like” cover as promised.

The insurer’s risk specialist, who had approached the client for business, had been told the All-In-One Farm Pack Insurance Policy must cover the same inventory and assets provided by the previous insurer.

In the previous policy, “hay and grain” were listed as a single item in the certificate of insurance (COI) with a sum insured of $206,985.

“That is clearly identified on the copy of the COI for the previous policy which the complainants gave the risk specialist,” AFCA says in its ruling of the complaint lodged by the client.

“The Panel is satisfied, on the available evidence, that the hay which was lost would have fallen within the scope of cover available under the terms of the previous policy, up to the sum insured.

“The insurer is therefore liable for their loss, and is required to cover the hay destroyed in the fire.”

Achmea accepted the claim for the shed where the hay was stored but declined to cover for the hay, which was valued at $276,000 at the time of the fire in November 2019.

The insurer says the hay was not listed in the COI and hay cover was not discussed when its risk specialist consulted the complainants about their insurance needs and requirements.

But the complainants disagreed, saying it was a specific request they had made to the risk specialist before agreeing to switch to Achmea. They say the loss of hay was significant as their farming business involves harvesting grain and fodder, including hay.

Evidence provided to AFCA showed the initial data collection from the risk specialist did include “hay and grain” as a single inventory item in the quote, consistent with the listing in the complainants’ previous policy.

However, the risk specialist later states the underwriting team said hay and grain had to be split accordingly because of the inherent risk involved. He proceeded to remove hay as an inventory item but grain remained covered in the policy with a sum insured of $200,000. He says he did this after noticing the shed had minimal hay when he made the site inspection in June 2019.

AFCA says it does not consider the risk specialist’s actions to be “reasonable or logical”. The risk specialist should not have assumed the lack of hay on-site at the time of the inspection meant there would never be hay stored there.

“The omission of hay from the final policy as purchased was in any case inconsistent with the complainants’ express requirement for a ‘like-for-like’ policy,” AFCA said. “And [it] also appears not to have reflected the point made by the insurer’s underwriting team which is reported to have said hay and grain needed to be ‘split’ in terms of separate cover under the new policy.”

AFCA notes that in the past, the customer had used a broker to “ensure their risks were properly assessed and cover was appropriate”.

The insurer says the client had the opportunity to review the cover offered and make any necessary amendments, but AFCA says it is “satisfied it was reasonable, appropriate and accepted by the parties that the complainants were relying on the insurer’s risk specialist”.

“The complainants relied to their detriment on the risk specialist’s advice and recommendation as to the suitability of the new policy, which proved not to be adequate for their needs.”

AFCA ruled the insurer must pay the complainants $200,000 - which was the sum insured for the grain in the policy taken out by the complainants - less an additional premium of $2755. The $2755 represents the extra amount that the complainants would have to pay had they taken up the option of insuring the hay as a separate item.

“On the available evidence (and given the quantity and value of hay which was lost in the fire), the Panel considers it more likely than not the complainants would have taken the separate cover for hay for the sum insured of $200,000,” AFCA said.

The insurer is also required to pay statutory interest on the final settlement sum, calculated from February 12 last year – the date the claim for the hay was declined – until payment is made.

Click here for the ruling.