The owners of an unoccupied home that sustained severe fire damage will not have their claim paid after a dispute ruling determined that their insurer was entitled to decline it.

The landlords lodged a claim under their home building policy on November 10 last year.

Auto & General declined the claim after its investigation found that the complainants failed to inform it that the property was vacant and cancelled their policy over the alleged non-disclosure.

The claimants admitted that the property was unused but said it was due to renovations that had been prolonged due to covid-related restrictions and delays.

They said they intended to rent and renovate the dwelling while waiting for a development application process for the property that was expected to take over a year.

Auto & General said the homeowners knew at the time of the policy inception on January 22 last year that significant renovation works were required to make the property habitable.

The complainants informed the insurer they would “try to rent [the property] quickly” and that the property would not be unoccupied for more than 60 consecutive days.

Due to ongoing covid restrictions, the owners could not inspect the home until two weeks after the policy was instated.

The landlords said it was only after the inspection that they realised the property required more extensive repairs than initially thought. They said they could not put a deadline on the renovation work because of covid restrictions.

The Australian Financial Complaints Authority (AFCA) panel said the critical issue was whether the insurer could prove that the complainants knew the property would not be habitable beyond the 60 days mentioned in the policy questionnaire.

“What is required is that the matter should be the subject of a true belief, held with sufficient assurance to justify the term 'known',” AFCA said.

The panel said that based on the available evidence, the complainants showed that they intended to rent the property when the policy was issued.

The ruling required the insurer to remove the policy cancellation and allegations of a breach of duty of disclosure from the complainants' insurance record.

AFCA did determine that Auto & General was entitled to decline the claim for the fire damage to the property, saying the policy clearly stated that it would only provide cover for a home that was unoccupied for a maximum of 180 days.

At the time of the claim, the complainants did not inform the insurer that the home was uninhabited and had been vacant for 292 days.

AFCA rejected the homeowners’ assertion that they were unaware of the policy stipulation, saying it had been stated in documents provided to them.

The panel considered whether it was fair for the insurer to rely on the provision in the light of Section 54 of the Insurance Contracts Act 1984 (Cth), which prevents insurers from refusing claims based on an act committed after the engagement of a contract unless the action was shown to contribute to the loss.

The fire had been determined to be suspicious by the police, and neither party disagreed that unknown third parties accessed the home at times leading to the fire because it had been vacant.

AFCA said it was fair to determine that the property was left more vulnerable to the claimed damage because it had been left unoccupied for more than 180 days.

The ruling allowed Auto & General to decline the claim but required it to refund the complainant’s premiums from July 21 last year – 180 days after the policy inception date – because the cover had not been applicable.

The insurer was also required to pay the claimants $2000 for non-financial losses related to stresses and inconvenience caused by the claims process.

The panel said aspects of the insurer’s investigation were unreasonable, including several interviews deemed unnecessary and invasive of the complainants' privacy.

Click here for the full ruling.