Homeowners defeat insurer's 'defective construction' exclusion

Complainants whose home was damaged after a severe storm hit it will be compensated for their losses after a dispute ruling determined that their insurer’s decision to deny cover for the property’s retaining walls was invalid.

The homeowners lodged a claim for damage to the property following the storm – with winds of over 100kph – on October 23 last year.

Youi accepted the claim but declined cover for damage sustained to the home’s retaining walls, saying that the construction had been defective.

The insurer appointed an engineer, referred to as SE, who reported that the walls had been undersized and did not meet engineering standards. SE also contended that the walls had been “significantly under-designed” in their ability to withstand “permissible tensile stresses”.

However, the Australian Financial Complaints Authority (AFCA) determined that these standards did not apply to this dispute after the complainant’s engineer challenged this point.

It said the engineering standards were not pertinent to walls less than 800mm in height and that the “permissible tensile stress” code was only applicable to events caused by earth movement, not wind pressure.

AFCA also rejected arguments from SE that the retaining walls had not followed manufacturing guidelines, saying that the document provided by the engineer gave “recommendations” that were “considerably less prescriptive than an industry standard”.

The ruling disagreed with the complainant’s engineer’s statement that it was “correctly assumed by all parties involved that no engineering was necessary for works performed” on the walls but said that Youi failed to support its contention that the claim met the criteria for the exclusion to apply.

“It is clear that the retaining walls failed. However, the insurer has not identified a failure to construct in accordance with any specific engineering criteria which applied at that time,” AFCA said.

Youi was required to reimburse the homeowners for costs to repair the damaged walls and nearby fence for a quoted amount of $27,720. The ruling applied a 25% increase on the costs due to a rise in building prices in recent months, increasing the total to $34,650.

The insurer was also required to pay $2621 for development application fees, $2080 to reimburse for expert report costs and $2000 compensation for non-financial losses relating to its lack of scrutiny of mistakes in SE’s report.

Click here for the ruling.