Claimant wins dispute over 'sudden' cracks that appeared after quake

A restaurant owner has won a claims dispute over “sudden and unexpected” cracks despite being challenged by a ruling on the cause of the damage.

The complainant lodged a claim on October 8 2021, a few weeks after a significant earthquake shook parts of Victoria, alleging that the tremor caused damage to the business’ walls and floors.

Blue Zebra appointed an engineer who identified cracking in the floor titles but said this was not caused by the earthquake and elected to decline the claim.

The claimant disputed the insurer’s assessment and appointed their own engineer, who reported the quake caused cracks along the floor, internal walls and an external wall.

The policyholder filed a complaint with the Australian Financial Complaints Authority (AFCA) on May 23, a few days after the insurer’s engineer challenged their representative’s findings.

AFCA called on the insurer to provide it with relevant documents to the complaint, including expert reports and a written outline of its position.

The body sent three separate requests, between September 13 and October 12, to Blue Zebra requesting the documents, which it did not respond to.

The insurer replied to AFCA on November 16, saying it had considered the complaint and referred to its internal dispute resolution decision letter, which disclosed its reason for denying the claim. It did not provide AFCA with a copy of the letter, nor the information initially requested.

The ombudsman referred to AFCA Rule A.9.5, which says it may take “an adverse inference from a party’s failure to provide information we request” unless a reasonable excuse is provided.

“The insurer has not provided any of the requested information and has not given any reason why it is unable to provide the information,” AFCA said.

“In the circumstances, I consider it fair to infer that the information not provided (including the insurer’s engineer’s report of November 24 2021) does not support the insurer’s position.”

The complainant’s engineer report noted a visible crack in one of the restaurant’s external walls, which it said was caused by the earthquake. The insurer’s engineer highlighted that the damage existed before the event and was noticeable in a Google Street View photograph from April 2019.

AFCA said the crack also appeared in earlier photos from 2016 and 2014.

The insured’s engineer also said that cracks on the internal walls were “not far apart,” which indicated that they were caused by the earthquake.

The ruling said there was a lack of “available information” to back the complainant’s argument that the earthquake resulted in the damage but did acknowledge that there was a possibility that the internal cracking “may have been sudden and unexpected”.

“Having considered the information provided by both parties, I am not satisfied that the tile cracks were caused by an earthquake,” AFCA said.

“However, I am satisfied that they were sudden and unexpected, and occurred during the period of insurance.”

“This is because of the complainant’s statement that the cracks appeared suddenly, and the inference that the insurer’s engineer’s report of November 24 2021 does not support the insurer’s position.”

The building insurance policy covered “accidental damage” for losses from an “unforeseen, unintended and unexpected event, which occurs suddenly and at a specific place and time”.

“The policy covers sudden and unexpected damage during the period of insurance. Therefore, the insurer must accept the claim for damage to the tiles,” AFCA said.

The decision required Blue Zebra to pay $16,830 for repairs to the kitchen and dining area cracking.

The insurer was also required to pay the professional costs of the complainant’s engineer, amounting to $1,650.

“The complainant’s engineer’s report was not convincing. However, it contained useful information, and I found it helpful in writing this determination,” AFCA said.

“In my view, it would be fair for the insurer to reimburse the complainant for the cost of the report.”

Click here for the ruling.