QBE has been forced to pay a flood damage claim because the product disclosure statement (PDS) was not handed to the customer at the time the policy was sold.

And it’s expected the decision by the Financial Ombudsman Service (FOS) may set a precedent for a number of residents of the Queensland towns of Charleville, Roma and St George whose claims for damage caused by floods in March last year have been denied.

These claims are estimated to involve as much as $6 million.

The action was taken by Roma resident Harriet Galagher, who was acting on behalf of her son and daughter-in-law, over an ANZ home and contents policy underwritten by QBE that did not specify flood cover.

But FOS found the PDS was not given to the customer at the time the contract was taken out and therefore she would not have known what was excluded from the policy.

As a result FOS found QBE was liable to settle the claim for flooding. The insurer has since made a settlement of $175,000.

insuranceNEWS.com.au asked the Australian Securities and Investments Commission (ASIC) exactly when a PDS should be handed out.

In response, ASIC says its Regulatory Guide 168 on PDS obligations (section RG168.41) states the document must be given to a retail client “at or before the time a recommendation is made to buy a financial product”.

The guide also says the PDS must be handed over when “an offer is made to issue or arrange the issue of a financial product or a seller makes an offer to sell the product if that sale requires disclosure”.