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Determination
Case number | 938854 |
Financial firm | Lloyd's Australia Limited |
Case number: 938854 28 February 2024
This complaint relates to a claim by the complainant under a residential strata policy held with the financial firm (insurer) for water damage to the insured property caused by three distinct storm events in late 2018.The complainant is a beneficiary under the policy.
The claim was cash settled and a Deed of Release (the Deed) was signed by both parties. The complainant received a cash settlement in June 2019.
The Deed made provision for further payments for specified items (provisional items) which might be damaged during the repair works. It also made provision for payment of a temporary accommodation benefit while repairs were being undertaken.
The complainant has not done the repairs. He wants the insurer to pay an amount for separate repairs due to mould damage he says was caused by the same three events, and also to pay an amount for the provisional items and temporary accommodation more than was provided for in the Deed.
The insurer says the settlement Deed releases it from further obligations under the claim.
Is the insurer entitled to deny the complainant’s claim for mould damage?
Yes. Given the exchanged material the insurer is entitled to rely upon the terms and conditions of the policy to deny the complainant’s claim.
No. However, in order to meet its liability for potential contingencies including the provisional items and the transfer of risk to the complainant associated with agreeing to cash settle the claim, the insurer should pay the complainant a 20% uplift of $8,571.
Yes. The settlement Deed provides for a payment for temporary accommodation. The insurer is to pay the complainant the temporary accommodation benefit for 33 days in a one-bedroom apartment.
Why is the outcome fair?
It is fair for the insurer to compensate the complainant for the outstanding matters in the claim and fulfil its obligations under the policy.
It is not fair to require the insurer to accept a claim for mould damage when the terms and conditions of the policy exclude cover for this damage.
This determination is substantially in favour of the complainant.
Should the complainant accept this determination, within 14 days of being notified of that acceptance the insurer is to pay the complainant an amount equal to the cost of 33 nights’ accommodation in a one-bedroom apartment at the facility named in the Deed.
Should the complainant choose to be paid the uplift rather than have the contingencies dealt with in accordance with the Deed, the insurer is to pay the complainant $8571.
Once this payment is made the insurer is not required to take any further action in relation to these claims.
Yes. Given the exchanged material the insurer is entitled to rely upon the terms and conditions of the policy to deny the complainant’s claim.
Coverage of the policy
The residential strata policy under which the complainant is a beneficiary provides cover for loss or damage at the insured address caused by a storm.
The coverage provided by the policy is subject to conditions, limitations, and exclusions. This means that not all loss and damage is automatically covered. Only loss or damage caused by an insured event, during the period of insurance and subject to the conditions, limitations and exclusions, is covered.
The full details of the policy coverage, conditions, limitations, and exclusions are contained within the Product Disclosure Statement (PDS) and Certificate of Insurance (COI).
I am satisfied that the PDS and COI have been provided to the complainant. Therefore, the insurer is entitled to rely upon the terms of the policy, including its conditions, limitations, and exclusions, to determine its obligations to the complainant.
Insured events include storm, and it was accepted that there had been storm damage to the complainant’s apartment.
Pages 18 – 20 of the PDS details the general exclusions which apply to all sections of the policy:
General Exclusions
…
None of the cover sections provide cover for loss, damage, destruction, injury or liability directly or indirectly caused by, arising from or because of:
…
9) Micro-Organism Exclusion…
Any loss, damage, claim, cost, expense or other sum directly or indirectly arising out of or relating to mould, mildew, fungus, spores or other micro-organism of any type, nature, or description, including but not limited to any substance whose presence poses an actual or potential threat to human health.
This exclusion applies regardless whether there is
(i)any physical loss or damage to insured property;
(ii)any insured peril or cause, whether or not contributing concurrently or in any sequence;
(iii) any loss of use, occupancy, or functionality; or
(iv) any action required, including but not limited to repair, replacement, removal, clean up, abatement, disposal, relocation, or steps taken to address medical or legal concerns.
This exclusion replaces and supersedes any provision in the policy that provides insurance, in whole or in part, for these matters.
It is accepted insurance law that the complainant carries the initial onus to establish, on the balance of probabilities (that is, more likely than not), a loss which is covered by the terms and conditions of the policy.
Once the complainant has established a loss which is covered under the policy, the onus transfers to the insurer to establish the application of a condition, limitation or exclusion upon which it seeks to rely, to limit its obligations regarding the claim, or to deny the claim.
Circumstances of the loss and claim
The complainant lodged his claim on 16 January 2019 for damage to his apartment that was caused by three storm events, all in late 2018.
Water entered the complainant’s apartment via a defective balcony and roof during heavy rain. The insurer accepted the claims relating to the three events agreeing to repair the resultant water damage to the apartment, but not the defects which allowed the water entry.
The insurer assessed the damage and offered a settlement for the three storm claims totalling $42,899.80. The complainant accepted this offer which was paid to him on 17 June 2019. The parties entered into a Deed to reflect their agreement.
The complainant says the Deed is not valid because it is not signed by an authorised person from the owners’ corporation. The Deed was signed by the complainant, he accepted payment pursuant to the Deed and he is a beneficiary of the policy. I consider the Deed is valid and binding on the complainant.
The complainant says the settlement did not include an amount for mould remediation. He said he notified the insurer of this in August 2019, soon after the Deed was signed. The insurer agreed to re-open the claim and assess the mould damage, but no action was taken. A copy of the email from the insurer agreeing to reopen the claim has been provided for this complaint.
The complainant engaged restorer RX who provided a report date 8 July 2022. RX took moisture readings throughout the property which showed elevated moisture levels. RX said:
It appears that there is ongoing water ingress into the property with longer term moisture damage present within. The exact cause of water ingress is unknown.
The complainant also engaged restorer DS who inspected the property on 6 June 2023. DS said the water ingress to the property likely began before the complainant purchased the property and is ongoing. DS says even without these other causes the claimed damage would have made the work necessary anyway:
Despite the complexities involved in distinguishing between the initial and additional water damages, it is important to note that the initial claim's implications, such as damage to the timber floor, would have necessitated its removal for subfloor drying. Any further water ingress, while possibly expanding the area of damage, would likely require similar remediation procedures.
The insurer says the complainant made an earlier claim for water damage in 2017 before it agreed to insure the property in March 2018. It says a cause of damage report was done for the previous claim, with the property inspection occurring on 20 December 2017 by builder TB. TB noted water ingress to the floorboards and that was due to the balcony defects, and the complainant reported the presence of mould from the 2017 event.
The insurer also says it is not liable for the mould damage because the complainant’s failure to attend to the repairs and new events have worsened the damage. It also says the policy excludes mould damage, even where it develops after an insured event, and that the Deed releases it from further liability on the claim.
The complainant says the insurer has offered to pay for mould remediation for other customers despite the policy exclusion, so it would be unfair for it not to pay him these costs.
While the Deed is expressed to release the insurer from further liability under the claims, I consider the email from the insurer agreeing to reopen the claim to assess the need for remediation works means the claim for these works may be subject to review.
As stated, the complainant has the initial onus to demonstrate a loss that is covered by the policy. If the complainant does establish such a loss, the onus transfers to the insurer to establish, on the balance of probabilities, that a policy exclusion applies.
The reports from RX and DS are both based on inspections of the property done more than three years after the claimed events. Both agree new water ingress events continued to occur and caused further damage. Also, DS is of the view that the damage was occurring before the claimed event. This is supported by the fact that there was a separate claim for water damage in 2017.
In circumstances where there was water damage pre-dating and post-dating the insured events, I am not satisfied the complainant has shown, on balance, the current need for remediation works has been caused by the 2018 storm events.
Ex gratia payments are payments made by insurers where there is no legal obligation for them to do so. They are made on a case by case basis depending on the circumstances. The fact that the insurer may have made ex gratia payments for mould damage to other customers does not create any obligation on it to make a similar payment to the complainant. I can only consider the circumstances of this complaint. Circumstances regarding other claims is not relevant to this complaint.
I am satisfied that the policy does not provide coverage for this damage.
The complainant has not met his onus to establish a loss covered by the terms and conditions of the policy.
The result is that the insurer is entitled to deny the complainant’s claim for mould remediation.
No. However, in order to meet its liability for potential contingencies including the provisional items and the transfer of risk to the complainant associated with agreeing to cash settle the claim, the insurer should pay the complainant a 20% uplift of $8,571.
The Deed agreed between the partied makes express provision for later payment for specific items in the event they are damaged during the repairs.
The items listed in the Deed are as follows:
The Deed provides for a certain amount to be paid to replace each item, and payment is conditional on inspection of the damaged item by the insurer.
The complainant has not yet undertaken repairs; however, he is seeking a settlement for the total cost of the provisional items without the insurer’s assessment.
To support his position, the complainant provided a report from kitchen fitter dated 22 January 2023. The kitchen fitter said each of the provisional items could not be reinstalled and must be replaced. It said each item would likely be damaged when removed. The total claimed cost for the provisional items is $35,200. The complainant has said he will not allow the insurer to inspect the provisional items and assess them during repairs because this would delay repairs.
The report from the kitchen fitter is brief and does not provide detailed explanation and to why he says the items will likely break on removal and could not be reinstalled. Additionally, I consider items which may have been able to be removed and reinstalled may now need replacement because of the ongoing damage caused by the continued water ingress and the complainant’s inaction in attending to the repairs.
In signing the Deed, the complainant agreed to the items and the nominated value, and that the insurer would be allowed to assess the items during repairs if they did need replacing. As such he is not entitled to be paid for the provisional items listed the Deed.
Although the complainant has not done the repairs, the risk remains that these items may need replacement when the repairs are eventually done.
When an insurer cash settles a claim, in some circumstances an uplift is generally paid in addition to the agreed settlement amount. The uplift, usually a percentage of the settlement amount, is to compensate the insured for transfer of risk that repairs may cost more and the loss of repair guarantee.
I consider such a payment is appropriate here to allow the parties to bring the claim to an end. The parties clearly envisaged that there may be further damage and therefore repair costs. The insurer accepted liability for this potential cost under the Deed. As repairs have not been completed, and there is no clear timeframe for their completion, I consider payment of an uplift on the settlement amount is fair. This brings the claim to an end and is consistent with the obligations of the parties under the Deed.
I am satisfied an uplift of 20% on the original settlement amount of $42,899.80 is fair in the circumstances.
Should the complainant wish to proceed with repairs, however, he is entitled to rely on the Deed and comply with its terms by allowing the insurer to inspect any listed items damaged in the repair process. In these circumstances it would not be fair to require the insurer to also pay an uplift.
Yes. The settlement Deed provides for a payment for temporary accommodation. The insurer is to pay the complainant the temporary accommodation benefit for 33 days in a one-bedroom apartment.
The Deed agreed between the parties also makes express provision for later payment of a benefit for temporary accommodation during the repairs.
In 2019 the repairs were anticipated to take 20 – 30 business days, and the Deed allowed for a maximum of 40 days.
The complainant says he should be paid for 88 days of temporary accommodation. Part of the basis of his claim is that restoration works for mould damage are predicted to take 27 days which he says should be added to the agreed accommodation quota in the Deed.
Given I do not consider the mould damage is covered by the policy, it follows that no temporary accommodation is payable under the policy while these repairs are done.
The complainant also says it is reasonable that he is provided with another 21 days to find a suitably qualified builder to undertake repair works, sign contracts with his appointed builder, and for suppliers to schedule works.
The complainant signed the Deed agreeing to a maximum of 40 days’ temporary accommodation benefit. The Deed also specifies temporary accommodation is payable from the day the works commence. It does not include the time taken to arrange trades. I am not satisfied the complainant has shown any reason that this is unfair or inadequate, or that he should not be bound by the Deed.
Similarly, the insurer has agreed that it is liable for temporary accommodation while repairs are undertaken, and it has not provided any reasons why it should not be bound by the Deed.
As repairs have not been started almost five years after the Deed was signed, so that the insurer can meet its temporary accommodation obligation to the complainant under the policy and to bring finality to the complaint, I consider payment of 33 days temporary accommodation is fair. This is the midway point of the estimated timeframe for the business days for the repairs plus weekends, being 25 business days plus 8 weekend days.
The complainant says he is currently living with a friend due to the state of the apartment. He says he cannot continue to live there as it will strain the relationship to remain there for the duration of the repairs. He claims a two-bedroom apartment so that he and his housemate can have the benefit of the temporary accommodation.
There is no reason why the complainant’s housemate is entitled to the temporary accommodation benefit.
The insurer is to pay the complainant the cost of a one-bedroom apartment at the facility described in the Deed for 33 nights.
It is fair for the insurer to compensate the complainant for the outstanding matters in the claim and fulfil its obligations under the policy and the Deed.
It is not fair to require the insurer to accept a claim for mould damage when the terms and conditions of the policy exclude cover for this damage.
The damage to the complainant’s property occurred in 2018 and the settlement agreement was in 2019. The Deed was drafted in such a way that certain benefits for which the insurer accepted liability would be paid if they arose during the repairs.
The complainant has not yet done the repairs. So that there can be finality to the complaint, it is fair to require the insurer to pay an uplift to the complainant for the transfer of risk and an amount for temporary accommodation.
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 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.
