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Determination
Case number | 12-00-1063725 |
Financial firm | QBE Insurance (Australia) Limited |
Case number: 12-00-1063725 4 October 2024
The complainant holds a farm insurance policy underwritten by the financial firm (insurer). On 13 September 2023, the complainant lodged a claim for damage to the insured property caused by the tenant’s use of the property to produce and store drugs. The insurer denied the claim because it says:
The complainant says:
No. The complainant has established, on balance, a loss of a type covered by the policy. The insurer has not established an exclusion it seeks to rely on applies to deny the claim.
The outcome is fair because the complainant has established a claimable loss, and the insurer has not relied on an applicable exclusion to allow it to deny the claim. It is therefore fair to require the insurer to:
This determination is in favour of the complainant. If the complainant accepts this determination, within 21 days of receiving the complainant’s acceptance, the insurer must:
Once the cleaning of the property has been completed (or any time sooner), within a reasonable timeframe, the insurer must:
No. The complainant has established, on balance, a loss of a type covered by the policy. The insurer has not established an exclusion it seeks to rely on applies to deny the claim.
The complainant is required to show, on the balance of probabilities (that it is more likely than not), that there is a claimable loss under the policy. This means the complainant must prove the loss or damage was caused by a risk that is covered under the policy.
Once the complainant has proven there is a claimable loss, the insurer is liable for the loss unless it shows an exclusion or limiting condition applies. The insurer has the onus of proving, on the balance of probabilities, that the exclusion or condition applies.
Cover under the policy is subject to the conditions, limitations and exclusions specified. There is no dispute the complainant was provided with the relevant policy documentation, including the certificate of insurance (COI) and product disclosure statement (PDS) at inception of the policy. Therefore, I am satisfied the insurer is entitled to rely on the policy provisions to assess its liability under the claim.
The complainant holds an insured event policy. In this case, the relevant section of the policy says:
You are insured against loss or damage at the address caused directly by the following insured events:
7. malicious acts, but not for loss or damage intentionally caused by:
(a) you, your family, or your family’s visitors;
(b) a tenant, or a tenant’s visitors or family…
The policy does not define ‘malicious acts’. The Macquarie Dictionary defines ‘malicious’ as:
adjective 1. full of, characterised by, or showing malice; malevolent.
2. Law motivated by vicious, wanton, or mischievous purposes, as in malicious arrest, malicious injuries to persons or property, malicious prosecution, etc.
The Macquarie dictionary defines ‘malice’ as:
noun 1. desire to inflict injury or suffering on another.
2. Law evil intent on the part of someone who commits a wrongful act injurious to others….
It is not in dispute when the tenant produced and stored drugs at the property, they engaged in a malicious act. The parties dispute whether, by engaging in a malicious act, the tenant intentionally damaged the property.
The complainant says:
The insurer says:
The policy does not refer to ‘malicious damage’. Rather, it refers to damage caused by malicious acts.
In these circumstances, I accept the tenant likely intended to manufacture drugs, and in doing so, cause harm, injury or suffering to others.
However, I do not accept this means the tenant intended to cause harm or damage to the property.
The damage to the property was merely a consequence of the tenant’s drug production and storage (being the malicious act). I therefore accept the complainant’s position that the tenant did not intend to damage the property.
I acknowledge the insurer says:
I do not accept the insurer’s interpretation of the insuring provision. This is because, while I accept a malicious act carries an element of intention, this does not mean the intention was to damage the property.
Therefore, the insuring provision operates to:
The Macquarie Dictionary definition of ‘intentional’ is:
adjective 1. done with intention or on purpose: an intentional insult.
2. of or relating to intention or purpose.
Considering the above definitions, I am not satisfied an act that is malicious and causes damage, necessarily means the damage:
As it stands, the insuring provision covers damage caused by malicious acts, unless intentionally caused by those listed in the exception (and subject to the further limitations and exclusions set out in the policy).
While the tenant’s acts were malicious and intentional, as the tenant did not intentionally cause the damage to the property, I am not persuaded the exception to the insuring provision applies to deny the claim.
The insurer says:
Accident is defined by the policy as:
An incident that is unforeseen and unintended and that causes loss or damage. This includes a series of accidents arising out of the one event.
I do not consider the tenant’s actions in this case to be an accident as defined by the policy. This is because the production of drugs by the tenant (which caused the damage) was not unforeseen or unintended. I therefore do not accept the insurer’s position that the damage caused by the tenant’s actions is accidental damage if it was not intended. This is also inconsistent with the insurer’s position that the complainant has established a malicious act (which is intentional) caused damage to the property (noting the intention to cause damage is disputed).
For the reasons outlined above, I am satisfied the complainant has established a claimable loss under the policy. The onus therefore shifts to the insurer to establish an exclusion applies to deny the claim.
Apart from arguing the policy does not cover accidental damage, the insurer has not sought to rely on (or continue to rely on) any other specific exclusions set out in the policy to deny the claim (including the exclusion for damage caused by intentional, reckless or fraudulent acts by the tenant). Therefore:
For the above reasons, I am satisfied:
Therefore, the insurer must accept the claim for damage to the property.
Both parties have provided quotes for the cleaning of the property. The insurer’s scope of works and quote shows the estimated cost of cleaning the property is $35,606.73. The insurer’s quote is the highest of the three quotes provided and appears to sufficiently set out the work required to decontaminate the property. The complainant does not dispute the insurer’s scope of works and quote.
However, the quotes show various internal parts of the property will need to be removed and disposed of as part of the cleaning process. It therefore follows that repairs will be required to rectify the damage caused by the cleaning process. The quotes do not include the extent of such repairs. Therefore, I am not satisfied the exchanged quotes set out the full extent of the damage covered by the policy.
In these circumstances, the insurer must obtain a scope of works and an actionable quote for the repairs to the property that are required following the cleaning.
Page 30 and 31 of the PDS sets out how the insurer may settle a home claim, including:
If the insurer and the complainant agree to cash settle the claim based on the cleaning quote and the actionable quote for the further damage, the insurer must add a 20% uplift fee to the cash settlement amount, to account for contingencies and the transfer of risk to the complainant.
In addition to cover for the damage to the property, the complainant is also seeking cover for his loss of rental income. The prohibition notice issued by the Cardinia council on 31 August 2023 shows access to the house and shed is prohibited until the property has been cleaned and is suitable for human occupation. It is not in dispute the house has not been cleaned.
The policy covers forced evacuation by government authority under additional benefits. The policy says:
If this Policy insures the home that you let to tenants, and:
Your home cannot be lived in because a government authority prohibits you from using it, because of one of the following incidents:
(a) damage to a home, strata title property, road or street caused by an event that is covered by this Policy;
[…]
we will pay any resultant rent lost.
We will pay up to a maximum of 20% of the sum insured for your home for loss of rent or rentable value if your home is tenanted or is between tenants at the time the loss or damage occurred.
We do not cover loss due to cancellation of a lease or agreement including if a tenant decides to leave without giving proper notice.
Under this additional benefit, we will not pay for:
(a) loss of rent if your home has been untenanted for 30 or more consecutive days immediately before the loss;
(b) any rent lost outside the period of forced vacancy;
(c) any rent lost later than 12 months after the damage occurs.
The complainant says the property was tenanted at the time the council issued the prohibition notice and has provided a fixed term rental agreement from 12 June 2023 to 11 June 2024 to support this. The rental agreement shows the complainant was receiving $1,521 per calendar month in rent.
While the complainant says the tenant went to prison from September 2023 to October 2023, this was after the council issued the prohibition notice.
Considering the exchanged information, I am satisfied the complainant has established a claim for the rental income lost because the property has been inhabitable.
The policy limits the loss of rental income to:
However, I am satisfied the insurer’s decline of the claim has contributed to the delay in cleaning and repairing the property so it can be rented out again. The complainant’s entitlement to cover for the loss of rental income does not solely arise from the policy. Rather, it arises from the insurer’s failure to handle the claim appropriately.
Therefore, while it is outside the scope of the policy entitlement, I consider it fair for the insurer to cover the complainant’s further loss of rent until either:
The outcome is fair because the complainant has established a claimable loss, and the insurer has not relied on an applicable exclusion to allow it to deny the claim. It is therefore fair to require the insurer to:
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all of the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
