A landlord has won a partial payout during a claim dispute after evicted tenants left broken windows, graffiti and missing taps - although the majority of the damage was ruled to be subject to a policy exclusion for poor housekeeping and unhygienic habits.

The insured submitted a claim in May 2019 for malicious damage under an IAG landlord insurance policy for the investment property. He sought payment of all damages as well as reimbursement for the cost of changing locks and boarding up the property to secure it.

But a builder engaged by IAG said the property was left littered with rubbish, clothing, bedding and food scraps throughout.

IAG’s assessor also said that outside, house gutters were non-existent, the timber fascia was rotting, the garden overgrown and litter and junk were strewn in the backyard. Internally, the house was in disrepair with little or no maintenance carried out.

The property had been badly neglected over many years and left to dilapidate slowly over time, the assessor concluded, and the broken windows and some other damage were from people breaking in when the property was boarded up.

IAG agreed to pay a claim for theft relating to keys and locks after the evicted tenant did not leave their keys behind but declined the rest of the claim, saying the damage wasn’t “malicious” and therefore fell under a policy exclusion.

The Australian Financial Complaints Authority (AFCA) largely agreed, saying the damage was mostly due to long-term tenant neglect, a “lot of wear and tear” and landlord maintenance issues.

“The majority of the damage is excluded from cover as the policy clearly excludes loss or damage arising from tenant neglect, carelessness, poor housekeeping, unhygienic living habits and wear or tear,” AFCA ruled. “[IAG] is entitled to deny payment for the claim for areas of damage which are not consistent with malicious damage.”

However, AFCA said some damage was malicious and for that IAG was liable to pay the landlord.

That included holes in walls and doors, graffiti, an air conditioner pulled out of the wall, broken windows, mirror and toilet seat cover, missing laundry taps, cupboard drawers and handles, and electrical switches pulled out of the wall.

Those items “are more likely than not a result of malicious damage by the tenant,” AFCA said. “The complainant has established a valid claim within the terms of the policy for some of the damage. This determination is partially in favour of the complainant.”

It ruled IAG should obtain a quote for those items and cover cost of keys and locks. The landlord also sought reimbursement for the cost of boarding up the property but AFCA said it was his responsibility to do everything reasonable to prevent further loss under the terms of the policy and IAG was not required to pay for that.

AFCA said it appeared from evidence that 30 months had passed with no repairs and maintenance being carried out at the property despite the landlord being cash settled for a previous property damage claim three years earlier.

Photos from May 2018, a year before the claim was submitted, “clearly indicate signs of wear or tear, tenant neglect and poor housekeeping at the property,” AFCA said, noting markings throughout the walls and “a build-up of long term dirt and grime” on the air conditioning unit and ceiling fan.

The IAG landlord policy covered "vandalism or a malicious or intentional act by a tenant or their guest" but not a lack of maintenance.

“I am satisfied on the balance of probabilities that the property was already showing signs of long-term wear and tear before the tenant moved in,” the AFCA ombudsman said.

“Property photos indicate that majority of the damage being claimed is due to long term tenant neglect, carelessness, poor housekeeping, and unhygienic living habits. The photos also indicate a lot of wear or tear with ongoing maintenance issues, all being events excluded under the policy.”

AFCA recommended IAG cash settle the landlord as the majority of repairs required to bring the property to a habitable condition were excluded under the policy.

IAG was also required to pay $250 compensation after incorrectly sending correspondence to the insured property address despite renewals and notices being sent to the landlord’s postal address for ten years.

See the full ruling here.