A tenant who was welding his 1968 Ford Mustang in a garage when a fire broke out and destroyed the property has lost a dispute after he tried to claim the cost of the damage under his third party liability motor policy.

The man had just replaced a clutch kit on the vintage car in January 2017 and began welding a patch onto the floor. The fire started and spread throughout the home he was renting.

Two years later, he received a demand from the landlord’s insurer for $786,000 for damage to the rented home.

He lodged a claim seeking full payment of that demand under a Special Vehicles policy held with IAG, which denied the claim on the basis of a policy exclusion which stated it would not pay for damage to property that was “in the physical or legal control of you or any person using your vehicle”.

The Australian Financial Complaints Authority (AFCA) ruled IAG was entitled to do so as the property was in his control under the residential tenancy agreement, which gave him right of occupancy.

“The panel sympathises with the complainant but the policy is clear,” AFCA’s ruling said.

“Although the complainant did not own the property he did have physical control of the property. The policy excludes third party liability where the damage claimed is to property in the physical control of the complainant.

“As the wording is clear and unambiguous, it is fair the insurer is entitled to rely on the exclusion to deny the claim.”

The Mustang owner said he was a mere tenant, arguing he only had the right to live at the home but otherwise had no right to do anything to the property.

AFCA said once he commenced residing in the property, he had physical control.

“He may lock doors and prevent or grant access. He must prevent his guests from causing damage or disturbance.

“The panel accepts the complainant may not have any legal control over the property in the sense of ownership however he did have the rights provided under the tenancy agreement. Arguably this includes the legal right or control over access to the property,” the ruling said.

IAG had separately argued welding did not constitute insured use of the Mustang as another reason for it to decline liability but AFCA said the act of replacing the clutch and welding did constitute use of the vehicle.

The policy was geared towards vehicle owners with an interest in vintage, classic and collectable vehicles and AFCA said it was reasonable such owners were interested in carrying out work on their automobiles.

“Should the insurer wish to narrow the scope of cover to avoid risks associated with this type of work, the policy should be clear and unambiguous,” AFCA said.

“On page 36, the policy refers to the ‘private use definition (above)’. Concerningly, there is no such definition either in the PDS or on the certificate of cover.”

One IAG policy definition included the vehicle being used in connection with repairing, servicing and testing, and AFCA said the act of welding or working on the vehicle was a fit with that wording and ruled “vehicle use” was not limited only to driving the Mustang.

See the full ruling here.