Homeowners whose property was damaged by tenants will receive more than $48,000 to cover fire-related losses after the dispute authority ruled that a smoke exclusion could not be relied upon.

The complainants said they found “a large amount of smoke damage” after the tenants left the property.

They said, based on conversations with the tenants, that it was caused by one-off use of a barbecue or brazier and had been poorly painted over. They lodged an insurance claim last December. 

Auto & General Services appointed a forensic fire scene investigator who inspected the property via video and said there was a “small section of what appears to be heat damage” but “no evidence to indicate any actual flame damage”. 

The insurer declined the claim, saying the product disclosure statement noted the policy did not cover “smoke or soot when no damage from fire has occurred”.

However, the Australian Financial Complaints Authority has prevented the insurer from relying on the exclusion.

“The insurer says the property was damaged by smoke, not fire,” it said. “However, the smoke was caused by fire. Any damage caused by the smoke is damage ‘caused by fire’.

“If fire causes smoke, and the smoke causes damage, the fire has (indirectly) caused damage.”

The complainants also said the claim should be considered under a supplementary product disclosure statement (SPDS), which covered fire losses, including smoke damage.  

They said the insurer emailed them the SPDS 13 times between them buying the policy and the claim being filed. They said under its wording, the coverage applied to policies renewed in June 2021 or to claims after April 2021.

An Australian Financial Complaints Authority ombudsman asked the insurer why it sent the SPDS to the complainants if it did not apply to their policy, which it did not explain.

ACFA accepts the SPDS applies and the policy should respond.

The insurer also tried to rely on wear and tear exclusions, but AFCA dismissed this, saying there is no evidence the damage developed over a long period.

The ombudsman requires Auto & General to settle the claim for $48,497, covering damage to the building, blinds and carpets.

It must also pay $1000 for non-financial losses over mishandling of the claim that caused the insureds to spend time investigating multiple policy documents.

Click here for the ruling.