AIG must cover nearly $250,000 of damage to a pastry dough manufacturer’s freezer room after failing to show its policy excluded the event.  

The policyholder lodged a claim in November 2022 after finding damage to the floor, walls and trims. It said the cause was frost heave – the upward displacement of soil – after a heating system under the room failed.  

The insured relied on a report from its electrician, who found one of two heating circuits had been disconnected and the floor heating system had no power supply.  

AIG accepted frost heave was the cause but said there was no evidence the heating system failure caused it.  

The insurer sent an engineer to inspect the site in January 2023. They concluded the frost heave was caused by long-term soil movement, which was not covered by the policy.  

The engineer pointed to poor site drainage, plumbing leaks and issues with the design and construction of the room. Following the report, the insurer declined the claim.  

The business began repairing the freezer room in February 2023 and lodged a claim dispute with the Australian Financial Complaints Authority.  

An AFCA panel says expert reports from both parties merely suggested how the damage occurred and did not investigate further.  

It says the insurer’s findings appear to be based on “assumptions”, noting the engineer wrongly stated the property was built on moderate or highly reactive clay. The engineer’s report had “only one photo of the poor drainage, without any clear explanation or supporting information to confirm how the drainage system was poor or why it would have been the cause of damage”.  

AFCA says the insurer’s expert did not investigate whether the heating system failure caused the damage.  

It accepts the complainant has not shown what caused the damage, but says it has established a valid claim for accidental damage.

“The onus is on the insurer to show any exclusion applies,” AFCA said.  

AIG argued the complainant’s decision to begin repairs prejudiced its ability to further assess the damage, but AFCA rejects this, saying the repairs began after the claim was declined.  

It says beginning repairs was fair, noting the freezer room is “an essential part of their daily business activity and needed to be repaired as soon as possible.

“The insurer had sufficient time to arrange a more thorough inspection from the claim lodgement and its decision to decline. However, it chose to conduct only a visual inspection and to deny the claim on the information it gathered.”  

AIG must pay $246,634 for the repairs, minus any outstanding policy deductibles, and pay interest on the amount.

See the decision here.