A landlord whose property was severely damaged by a fire caused by a tenant’s illegal drug operations will not have her claim paid after a dispute ruling backed her insurer’s application of a policy exclusion. 

The insured lodged a claim after the blaze damaged the investment property in December 2021. The claimant had purchased the policy about a month earlier, insuring the property for about $390,000. 

Suncorp declined the claim after its investigations attributed the fire to an illegal electrical connection between the building’s power supply and a cannabis farm set-up. 

The insurer’s forensic fire scene investigator, referred to as PG, says the fire was likely started by a faulty connection, causing wiring to short circuit or emit excess heat. 

Suncorp also relied on evidence from the police officer who investigated the fire, who determined the blaze was caused by the illegal set-up. 

The insurer says the policy excludes losses from the unintentional or intentional use, or existence, of illegal drugs, highlighting that the set-up was used to manufacture and store cannabis.  

The complainant says it was unfair to decline the claim, noting that she lived in a different state from the property and was unaware of the tenant’s activity. 

The claimant also argues that the policy’s illegal drug exclusion was “too broad and ambiguous”, saying parts of its definition are “indefinable” and allow the insurer to deny “any claim that could arise from the mere existence or contamination by any illegal drugs”. 

The Australian Financial Complaints Authority (AFCA) panel acknowledged that the policy exclusion “could have been worded differently,” but said it was applicable to decline the claim given the circumstances of the loss. 

“The panel accepts that the illegal drugs exclusion is densely worded and could have been drafted differently so as to improve its readability,” AFCA said. 

“However, that does not mean it is ambiguous, or that it is otherwise so broad that it is to be ignored.  

“The proximate cause of the fire was the tenant’s illegal cannabis cultivation.

“Whether the exclusion applies is not dependent on the complainant’s knowledge of the illegal activities.” 

The panel also shot down the complainant’s argument that PG’s report did not “conclusively determine the actual cause of the fire”, saying that his findings were detailed and “in line with the views of the investigating police officer”. 

“Accordingly, by reference to the proximate cause of the fire and the principles applying to the construction of insurance contracts, the panel is on balance satisfied that the insurer is entitled to rely on the illegal drugs exclusion to deny the claim.” 

Click here for the ruling.