AIG has won a claim dispute after a warehouse owner failed to reveal that he owned half the business renting his property, or make it known that it had been placed under administration prior to the policy commencing.

The landlord bought an AIG business insurance policy via his broker for the large warehouse in January 2019. It was in his name and the name of a holding company.

The tenant had ceased operating when the policy was incepted, although its owner was regularly at the warehouse, and had not made rental payments since the previous October. The landlord arranged the AIG policy for the tenant as it was unable to meet premium payments.

He lodged a claim around seven months later for theft of copper wiring and extensive damage. He was at the site with the director of the tenanting firm when the loss was discovered.

AIG refused the claim, saying the warehouse landlord had breached his duty of disclosure by not disclosing his involvement when asked: “Have you or any partner(s) or director(s) of the business ever been involved in a company or business which became insolvent or subject to any form of insolvency or voluntary administration (e.g. liquidation or receivership)?”

The holding company named on the policy - of which the landlord was sole director - owned half the tenant, and the landlord had also been a director at the tenant business five years earlier.

The warehouse owner went to the Australian Financial Complaints Authority (AFCA), saying he was not connected with the management of the tenant, had been diagnosed with a serious illness and took no part in the business.

He said the tenant went into liquidation on March 23 2019, though he was aware it had been placed under administration on January 21 2019 - prior to the policy being incepted.

AFCA ruled in favour of AIG, saying the landlord breached his duty of disclosure by not disclosing his involvement and AIG had successfully shown it would have refused cover if this were disclosed.

Noting the landlord bought the AIG policy on the struggling, rent-arrears tenant’s behalf, AFCA said “this unusually benevolent arrangement adds to the likelihood the complainant is in some way involved in the tenant”.

The landlord’s presence at the warehouse when the theft was detected “further suggests the complainant was at least somewhat involved,” AFCA said.

“The policy application broadly asks whether the complainant had been involved with … a business which became insolvent. The Panel considers the complainant was involved with the tenant,” AFCA says. “Effectively the complainant is a 50% owner of the tenant.”

AFCA said AIG’s underwriting guidelines clearly showed that an “underlying principle is that a recently bankrupt, insolvent etc insured is an undesirable risk”. AIG revealed it was presented with 1035 policy applications for business insurance over 2019 and 2020 where a bankruptcy had been disclosed in the past five years. In each instance, it refused to offer insurance.

“Given this, the panel accepts the insurer’s position that it would have refused the risk if aware of the complainant’s involvement in the tenant and that it had been placed in administration prior to the policy commencing,” AFCA said.

“Given the insurer has shown it would have refused to offer cover if the complainant had not breached his duty of disclosure, it is entitled to refuse the claim.”

AFCA also said it was fair that AIG refund the premium paid.

See the full ruling here.