Landlords who had their home contaminated by drugs used by a tenant have partially won their dispute with their insurer over whether further inspections are required at their property.

The complainants had their claim for malicious damage and loss of rent accepted and cash-settled by Allianz on September 24, 2019, but said the insurer’s offer was not enough to cover the damage done to the building.

They alleged that the insurer’s proposed remediation would not remove all of the methamphetamine contamination caused by the tenant and said its scope of repair was missing damaged items.

An Allianz-appointed inspector observed contamination in 13 out of 14 qualitative samples of the property, as well as four positive quantitative samples. The data was used to form their proposed remediation plan.

Allianz also appointed an occupational hygienist after the insured raised concerns about the proposed plan, who backed the initial report’s findings.

The complainants said the insurer’s testing did not examine contamination that may have been absorbed beyond the property’s surfaces.

They proposed several solutions to resolve the potential contamination based on reports from an expert, referred to as JW, including a clean-out remediation that was more extensive than Allianz’s proposal.

The Australian Financial Complaints Authority (AFCA) panel said that JW’s reports did not nor could not identify what remediation efforts would be applicable because she had not conducted any tests on the building.

But it noted that JW’s report raised “legitimate concerns” about whether Allianz conducted appropriate testing to identify contamination, "in particular, the lack of testing of the internal cavities to identify whether these were contaminated”.

Allianz said it did not inspect the property’s cavities because the work would have been “destructive and expensive and not generally warranted for short term manufacture”.

It noted that structural contamination could only be caused by “mid-high level contamination” over an extended period. The occupational hygienist suggested it would be unlikely that future tenants would come into direct contact with potentially contaminated cavities.

AFCA refuted the insurer’s argument, saying that its obligation under the policy is to restore the home to its previous state. It said leaving the area uninspected puts the owners at risk should they conduct further works that require the cavities to be exposed.

“In this regard, the panel accepts the complainants’ position that the insurer’s testing of the property was not extensive enough. Instead, the insurer ought to have tested the internal cavities too to ensure the contamination was not more extensive,” it said.

The panel also granted the landlords’ contention that the kitchen oven should be replaced by the insurer, which had not been in its original scope of repair. It said given the risk presented in nearby areas, all kitchen appliances should be replaced to avoid contamination.

It rejected appeals from the claimants regarding several other replacement requests, including the outside fence, electrical items and the plumbing systems. It said the complainants failed to substantiate that the claimed event damaged these items.

Allianz had already adjusted its scope of repairs based on earlier submissions from the complainants, which resulted in an $11,500 increase to the total repair sum and included a 15% contingency for additional items that may have been missing.

The panel acknowledged that some items might have been missing but said the contingency accounted for this, and it was unlikely that any important items were not included.

The ruling required Allianz to engage with an expert to test the building’s cavities to determine if there was damage. It said if there was no identified damage, the insurer should include a 25% contingency to the repairs due to increased material costs, amongst other factors.

AFCA said if cavity contamination was revealed, the insurer should prepare “new and actionable quotations” for the damage and the outstanding repairs, which would be cash-settled with a 15% contingency. In addition, the insurer would also be required to pay a loss of rent until the repairs are completed or 12 months have passed.

The panel rejected appeals from the homeowners that the insurer should cover for already sustained rental losses.

AFCA also required Allianz to pay the landlords $4000 in non-financial losses noting issues with inadequate testing, miscalculated settlements and “looking to utilise a method of settlement that would leave the complainants in a worse position (loss of value)”.

Click here for the ruling.