Insurer criticised for denying claim 'after costs increased'

The Australian Financial Complaints Authority (AFCA) has slammed Allianz for accepting a home claim, starting work, then denying it almost a year later as costs spiralled.

The complainant lodged a claim under his home and contents policy on May 29 2020, for damage relating to mould, dampness, and cracking in his home, which occurred earlier in the month.

The policyholder told Allianz that in past years he had “noticed ‘rising dampness’ occurring in various spots of the house,” and observed that some walls appeared to be cracking and “mouldy”.

Allianz accepted the claim on July 16 2020, before reversing its decision on May 27 last year, saying that the damage occurred before the policy inception on September 17 2018.

But AFCA did not accept this, saying “it appears the trigger for reversing this decision was the increasing cost of the claim”. It also said the works already carried out by the insurer “impacted the complainant’s ability to mitigate his losses”.

“For instance, the insurer disposed of a substantial amount of contents and had done extensive works to the property such that it rendered the property uninhabitable,” AFCA said.

“This meant the complainant and his young family were forced into temporary accommodation whilst attempting to dispute the insurer’s position on a fairly significant claim.

“This claims handling is unreasonable and arguably a breach of the insurer’s duty of utmost good faith.”

AFCA ordered Allianz to pay the complainant $5400 – the maximum amount – for non-financial losses.

It also determined that the complainant established a valid claim and required Allianz to indemnify damage to the property and contents. It said the insurer could restart repairs or cash settle the claim.

It required that if Allianz did cash settle, it arrange for an independent structural engineer to inspect the property and provide a full scope of works for repairs. The insurer would be required to pay costs associated with the engineer and a contractor who would give a timeframe for the repairs to be completed.

The panel also stipulated a 20% increase on a cash-settled claim, given that the insurer was passing work risks to the homeowner and the possibility that changes could be required.

AFCA also required Allianz to extend the complainant’s temporary accommodation period beyond the 12-month limit, saying that the insurer’s “unreasonable handling” of the claim caused the home to be uninhabitable.

The ruling entitled the homeowner and his family to temporary accommodation until the repairs were completed, 12 months after he accepted the determination or the estimated repair time if the claim was cash settled, whichever occurred first.

Before lodging the claim, the homeowner had appointed a plumber, referred to as OC, who reported blockages to several pipes, including the main stormwater pipe leading up to the street.

The plumber reported that all rainwater from the roof had not been exiting and instead was draining underneath the house due to the blockages. The homeowner hired a separate plumber to repair the stormwater pipe.

Allianz hired assessors who noted that the complainant said he had been advised that his property had been experiencing dampness and cracking for the past two or three years.

The AFCA panel said the leak was likely “long-standing” but was not convinced that it caused damage before the policy’s inception.

The panel said the claimant had been “relatively consistent” in his assertion that the damage appeared near the time of the claim lodgment.

“Given the nature of damage identified, it appears unlikely this physical damage had manifested for such a long period and remained unactioned,” AFCA said.

“The panel considers it likely that whilst rising damp was occurring, the damage being claimed only manifested closer to the claim date.”

The panel said policy exclusions relating to environmental factors were not applicable because the leak was attributed as the “dominant cause of the damage”.

It rejected Allianz’s argument that the damage did not occur within the period of insurance, as the leak had been long-standing.

“Whilst it may have first begun to leak before the insurer came on risk, it is clear it would have continued to do so afterwards,” AFCA said.

“Further, accepting the complainant’s evidence that the physical damage only manifested a few months before the claim, then the exclusion would only apply if the information shows the dominant cause of this damage was the pipe leaking before the insurer came on risk.

“The panel does not accept this.”

Click here for the ruling.