A homeowner will be covered for damage caused by a running bath tap after a dispute ruling determined that her insurer failed to inform her about the exclusion it applied in its claim denial.

The complainant lodged a claim on November 5 last year for damage caused by overflowing water after the tap was left on.

Hollard denied the claim, saying its home and contents policy excluded damage caused by "the escape of liquid from any fixed item used to hold liquid due to overflowing as a result of a tap being left on".

The claimant said when she purchased the policy on April 17 2019, the product disclosure statement (PDS) informed her that damage from overflowing water was covered.

The insurer issued an updated PDS on February 1 last year that added the tap exclusion, which it said was applicable for renewed policies from April 1.

Hollard provided the Australian Financial Complaints Authority (AFCA) with a copy of a renewal notice informing the complainant that her policy would be renewed on May 1. It also supplied AFCA with a copy of the new PDS and a four-page “derogation notice” that specifically noted the updated exclusions.

AFCA observed insurer records that showed it emailed the claimant with a pdf document titled “Policy Renewal Property Document” on April 1, which the complainant said she did not receive.

The insurer said it did not have a copy of the email and could not answer whether the document included a copy of the new PDS and derogation notice.

The ruling sided with the policyholder, saying Hollard failed to provide evidence that it informed the complainant of the policy changes and could not explain what was in the document it emailed on April 1.

It said Hollard was not entitled to apply the exclusion because the claimant was unaware of the changes and required the insurer to accept the claim.

"The insurer’s records show it sent the complainant an email on 1 April 2021, but do not show what information the email contained," AFCA said.

"The insurer has not provided information showing it sent the complainant the new PDS, the derogation notice, or any other document mentioning the new exclusion."

Click here for the ruling.