An owner-builder and his wife whose insurance claim was declined because their policy had lapsed almost five months before a damaging storm have lost a dispute with their broker of more than 30 years.

The couple held a home construction and liability policy arranged by SMS Insurance. It was a single term non-renewable contract arranged to February 2021, and later extended to the end of May that year, to cover construction of their property.

SMS Insurance managed several policies for them in a relationship that spanned around three decades.

The storm occurred in October 2021. In December of that year, the builder attended SMS’s office to report damage to sheds.

The claim was declined by the insurer on the basis the policy had lapsed in May.

The Australian Financial Complaints Authority (AFCA) said the wife had been experiencing “very difficult times” relating to her health and associated treatment during the period.

“I empathise with the couple. However, the available information does not show the broker failed in its duty or obligations,” AFCA’s ombudsman said. "The sheds were not covered at the time of the storms because of the couple’s failure to respond to the broker and provide requested information and instructions.

"I am satisfied of the couple being aware this was not a renewable contract but that an application for the insurer’s discretion could be made to allow a limited extension of the period of cover.”

When the first policy extension expired, SMS emailed the couple to find out if construction works had been completed. There was no reply, and in early June 2021 – almost five months before the storm – SMS made contact again to ask if another extension was required.

Three days later, having not heard back, SMS contacted the insurer to request a further extension. Another email was sent to the couple requesting information to strengthen the extension request. The couple did not respond.

AFCA ruled SMS had made adequate attempts.

The couple said it was never agreed email was the accepted mode of communication argued SMS did not send the emails or make follow-up phone calls. Over the years it had been the practice of SMS to follow up with a phone call or text message, they said.

SMS disputed this, saying various other emails and policy renewal documents were sent to the couple over the same period for other contracts which were actioned and paid. The insurer provided copies of all the emails, and the ombudsman said this was “persuasive” and it was clear that the mode of communication over many years was email.

“It may well be the couple’s expectation that the broker should be following up emails with a phone call. However, there is no obligation on a broker to do so and I note the broker maintains that such calls were made.”

AFCA said SMS was not obliged to show emails had been received – only that they were sent – and a screen shot of the builder’s email inbox supported SMS’s position as it showed many emails sent to the couple regarding the numerous policies it managed for the couple.

The success of the first policy extension meant the couple was aware of the application process, AFCA said, and that the insurer required updates on construction progress and remaining works cost estimates.

“I accept the broker had informed the couple of the extent of cover and its limitations under the policy at inception as well as the first extension application,” the ruling said. "Had the couple responded to these emails with the requested information, the broker would have been able to submit the extension application.

“The broker has shown it fulfilled its duty to reach out to the couple regarding the lapse of the first extension period as well as seeking instructions and information to apply for a second extension.”

AFCA was shown communications between the broker and insurer, and said the insurer provided “persuasive information” showing the couple acted on other emails sent to the same email address over the same period. The couple also attended SMS’s office and no mention of the relevant policy was made.

“It is reasonable to accept the broker’s position that it formed the view the couple was no longer in need of the policy,” AFCA said, adding SMS had acted appropriately, followed the couple’s instructions and acted in their best interests based on the instructions given.

“The broker upheld its duty in representing the couple.”

See the full ruling here.