A Victorian homeowner who claimed for water damage after a pipe burst has won a dispute after his insurer alleged that he misrepresented the property’s condition.

The complainant purchased the home and contents policy in November 2021 through Auto & General’s website. During the process, the insurer asked the would-be policyholder if his home was “in good condition”, to which he responded yes.

The question defined “good condition” as a property with no faults or defects, such as leaks, holes, or pre-existing damage that could lead to a loss or injury to people.

Auto & General appointed a builder, referred to as FB, to inspect the loss after the insured lodged the claim relating to damage and flooding to multiple rooms from a burst flexi pipe in the laundry of his home in October last year. 

FB reported that the damage appeared “consistent with a burst flexi hose water event” but raised the possibility that the water tracked down from a pre-existing hole in the garage ceiling. 

The builder noted that the ceiling had been leaking, causing long-term mould growth and potential damage to the building’s framework. FB says the water ingress could have contributed to the flooding in downstairs areas of the property.

The complainant says the leak had been present for about 11 years and could not be fixed despite previous attempts to remedy the issue. He says the leak was small and likely stemmed from a garden bed near the property’s boundary.

Auto & General declined the claim and cancelled the policy after alleging that the policyholder’s failure to inform it about the leak misrepresented the home’s “good condition” status. 

The insurer says the claimant had been cautioned and made aware of the importance of not making a misrepresentation before he agreed to policy terms. 

It says if it had been aware of the damage, it would not have issued the policy as the property’s condition would have been flagged as “unacceptable” as per its underwriting guidelines. 

But the Australian Financial Complaints Authority (AFCA) scrutinised the insurer’s “good condition” policy terminology, saying that neither the question nor the policy provided “any degree of clarity” about what level of damage must be disclosed. 

AFCA says the “ambiguous” question did not allow the complainant to assess whether the ceiling leak was “so obvious and problematic that it should have been disclosed”. 

“It should not be in dispute that, virtually, all homes have some faults or defects,” AFCA said.

“Thus, if the question was interpreted literally, the outcome would be that all homes with any fault or defect, regardless of the nature or significance of that fault or defect, would be classified as not in ‘good condition’.

“A reasonable person might fairly conclude that, the fact a home has a leak, a hole, or some other defect, does not automatically cause the house to be classified as not in ‘good condition’.

“Indeed, I am convinced a reasonable person could be aware their home has a leak, or a hole, and still fairly considers the property to be in ‘good condition’.”

AFCA shot down Auto & General’s contention that the leak had been severe enough to warrant the entire home not being considered in “good condition”, noting that the leak had been confined and limited to one room. 

The complainant did not seek for the insurer to reinstate the policy and accept the claim, saying that he had “moved on” following the complaint and instead only sought the removal of the claim denial and policy cancellation from his insurer records, which AFCA required Auto & General to do.

Click here for the ruling.