A laundry business will have its fire claim covered after the Australian Financial Complaints Authority (AFCA) ruled the broker hadn’t done enough to make sure the policyholders knew cover would be cancelled if smoke detectors weren’t installed and thermal scanning carried out.

The broker sent an email with the requirements in an attachment, but when there was no response, didn’t follow up verbally or in writing, AFCA says. The policy was cancelled on November 26 2021 and the laundry was destroyed by fire on January 25 last year.

The complainants had lodged five claims from 2017 to 2021, four for fusion and one for motor replacement. When the existing insurer wouldn’t renew cover, the McLardy McShane Partners broker approached 11 insurers about a new policy.

Only one insurer agreed and the broker instructed it on October 25 2021 to bind cover from October 28. The policy was conditional on monitored smoke detector installation within 30 days and the performance of thermal scanning, which detects overloaded circuits or faulty switchgear components.

The broker sent an email outlining the new cover on October 28, but the complainants said it wasn’t received, and didn’t respond.

The AFCA panel was satisfied, on the balance of probabilities that an email was sent and that it advised that the policy had “strict terms regarding the fire risk”. But the email had eight attachments and details of the terms and the deadline were on the last page of a five-page document.

“The panel believes the email did not clearly convey the gravity of the situation” and a competent and experienced broker would also expect a client to respond to an email saying they were in imminent danger of losing insurance cover, AFCA says.

“When the complainants did not respond to the email, the broker should have contacted them to confirm they understood the seriousness of the situation,” it says.

The broker says it thought the complainants weren’t responding because they “had secured their own cover”.

“The broker cannot have reasonably thought this,” AFCA says. “The broker had acted for the complainants for the previous 10 years. The complainants never said they wanted to end the relationship, or that they would arrange their own cover.”

The complainants say the broker called them and said the insurer wanted thermal scanning and smoke detectors, but these were the landlord’s responsibility, and they were led to believe the broker was going to contact the landlord.

The broker told the insurer that the laundry was a tenant and may not be able to meet the requirements in time and would need to ask the landlord for a “subsidy”. The broker asked if the requirements could be waived, but was told the measures were non-negotiable, although a time extension could potentially be given if genuine attempts had been made to comply.

AFCA says the broker never asked the complainants whether they could meet the requirements, and it never contacted the landlord, or advised the complainants to contact the landlord to see if the requirements could be met.

On January 5 2022, the insurer emailed the broker saying the policy had been cancelled, as per a cancellation notice issued on November 26.

“The broker did not tell the complainants the policy had been cancelled. The broker says it regrets this,” the decision says.

AFCA says the broker did not take all reasonable steps to ensure the complainants understood they would lose cover if they didn’t meet the fire safety requirements, didn’t ask whether they could meet the requirements, or advise them to do so if reasonably possible, and didn’t tell them the policy had been cancelled.

“For the above reasons, the broker breached its duty of care to the complainants,” the decision says.

AFCA said the broker must pay the sum the insurer would have paid if the policy was in force on January 25 and conditions met. Premiums, any excess and thermal scanning and smoke detector costs could be deducted.

The complainants may contact AFCA again if the parties can’t agree on compensation.

The decision is available here.