The owner of a Passat station wagon has won a claim dispute with IAG after his car was found burnt-out in bushland.

IAG had declined his claim as “unbelievable and nonsensical”, accusing him of staging the theft to obtain a windfall. The insurer raised many concerns about the man’s version of events and his financial motive, character and credibility.

The car owner - who had formerly been convicted of supplying a commercial quantity of drugs and had his licence suspended for driving with an illicit drug present in his blood - admitted to taking drugs at a party the evening before his first interview with the insurer.

IAG said radio signals did not match his account of where he was when he called to report the car theft and he changed his version of events at a second interview.

The claimant denied any involvement in the theft and took the matter to the Australian Financial Complaints Authority (AFCA), which determined IAG failed to establish the claim was fraudulent.

“Whilst I accept there are issues surrounding character and credibility, the complainant has been up front with his admissions about these issues,” AFCA’s ombudsman said. "I do not find that the matters raised suggest the complainant was involved in the theft of the vehicle.”

The claim was submitted two years ago under an IAG policy insuring the 2012 Volkswagen for an agreed value of $18,500. IAG declined it, saying he had the opportunity to drive the vehicle to the recovery location and set fire to it, based upon timelines and inconsistencies.

It raised that he had an offence of driving the vehicle the while unregistered, a licence suspension and that he waited nearly two years after purchase to insure the car.

Phone records showed he was not asleep at the time the theft possibly occurred, IAG said, and it also offered Uber and toll point receipts showing a charge in the early hours of the morning when the theft may have occurred. It also said he had removed a car stereo system prior to the theft.

AFCA found the owner’s version of the loss credible and there was “no information” connecting the owner to the theft of the vehicle, with no witnesses or CCTV footage.

“It is possible for the complainant to have taken the vehicle and set fire to it. It is also possible that a person or persons having stolen the vehicle for whatever reason and then having used the vehicle for whatever purpose, set fire to the vehicle,” AFCA said. “There is sufficient explanation for the said inconsistencies.”

The man said he last saw the station wagon after his roommate parked it in a street near his house and locked it. Two days later the pair were driving in the roommate’s car and noticed the Volkswagen was not there. On return to the area, both confirmed it was gone and the owner reported this to the police and the insurer and provided two sets of car keys.

The vehicle was fitted with a robust security system and a correctly coded key was needed to drive it, though IAG’s forensic locksmith expert said a “pseudo clone” key could have been used, though that would require the car and primary keys being available for the cloning to occur.

“I accept that it is most likely that the vehicle was driven to the recovery location with a correctly coded key. This, however, does not mean that it was driven by the complainant or a person having been provided access to a correctly coded key held by the complainant,” AFCA said.

"The forensic evidence provides some alternatives as to how the vehicle may be stolen. It is possible that a someone with a cloned key drove it away.”

The man admitted he was in financial difficulty and owed money for various things and was unemployed at the time of the theft, though he had obtained part-time employment by the time IAG interviewed him and he received money from a pension fund.

AFCA said his accounts were always in credit and he had sold property and vehicles in recent years. It was not persuaded his financial position was a “main factor” and said that “despite owing money it seems his spending was sustainable”.

The car owner and his roommate were generally consistent in their accounts of the theft, AFCA said, and the explanations were reasonable.

“Whilst I accept the circumstances presented may show some inconsistencies with the theft of the vehicle there is not enough information ... to show the complainant was involved in the theft of his motor vehicle or arranged for someone else to steal the vehicle,” AFCA said.

See the full ruling here.