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Determination
Case number | 1044274 |
Financial firm | AAI Limited |
Case number: 1044274 23 May 2024
The complainant held a home building insurance policy for her investment home. The policy was underwritten by the financial firm (insurer). On 11 August 2023, she lodged a claim for fire damage which occurred the previous day.
The insurer declined the claim. It says that the complainant misrepresented the true condition of the property. The insurer says when the complainant last renewed the policy in 2022, she did not inform it about:
The complainant acknowledges trespassers continually broke the locks and that she received phone calls from the police over the years. She says she regularly maintained the yard and does not accept the home was in a poor condition.
No. The insurer has not successfully shown, on balance, the complainant failed her duty to take reasonable care to not misrepresent the condition of the property in 2022. Even to the extent she may have misrepresented part of the home’s condition, the evidence is not persuasive the insurer had grounds to deny the claim.
Given this, the insurer must reinstate the cover and indemnify the complainant pursuant to the 2022/23 policy’s terms and conditions.
Why is the outcome fair?
The insurer has not successfully shown the home was not in ‘good condition’, prior to renewal in 2022. The exchanged material does not show the complainant failed her duty to take reasonable care to not misrepresent at renewal. Given this, it would not be fair to permit the insurer to deny the claim.
This determination is in favour of the complainant.
The insurer is required to reinstate the policy for the 2022/23 policy period and indemnify the complainant for the full extent of her loss, pursuant to the terms and conditions of the policy. The insurer may deduct from any settlement the premiums due that were previously refunded.
The insurer is also required to pay interest on any unpaid amount, pursuant to section 57 of the Insurance Contracts Act 1984 (the Act). Interest is payable from 20 November 2023 until the date of settlement.
2.1 Is the insurer entitled to decline the claim?
No. The insurer has not successfully shown, on balance, the complainant failed her duty to take reasonable care to not misrepresent the condition of the property in 2022. Even to the extent she may have misrepresented part of the home’s condition, the evidence is not persuasive the insurer had grounds to deny the claim.
Given this, the insurer must reinstate the cover and indemnify the complainant pursuant to the 2022/23 policy’s terms and conditions.
The complainant incepted the home building policy with the insurer in 2007.
The home was not tenanted or permanently occupied. The complainant says she visited it every couple of weeks, primarily to maintain the gardens. The last home visit occurred the day before the loss.
Whilst the complainant admits the roof had surface rust, she says it did not leak and remained functional. The complainant received several council notices to mow the lawns and generally tidy up the property in the three years prior to the loss. She reports she and her husband had some financial difficulties through 2022. They are pensioners, and she says this impacted their ability to fully maintain the home during the period immediately before the loss.
The impact of the fire meant the home was burnt out and destroyed.
The insurer says it is not liable for the claimed loss. The policy was last renewed effective from 2 December 2022, based on renewal documents issued on or about 24 October 2022.
There is no dispute this policy was obtained wholly, or predominantly, for the complainant’s personal purposes. Therefore, it is a ‘consumer insurance contract’ as defined by the Act.
The complainant had a duty to take reasonable care not to make a misrepresentation (the duty) when renewing the policy. This is set out in section 20B of the Act and applies when a contract is entered into and/or at renewal.
To decline a claim on this basis, the insurer must be able to at least show:
Whether or not the duty has been complied with is mostly a subjective test, informed by the facts of the case. Section 20B(3) sets out a non-exhaustive list of potentially relevant matters:
Section 20B(4) also says that the insured’s particular characteristics or circumstances are relevant if the insurer was aware of this, or ought to have been.
To comply with their duty, an insured must answer the questions proposed at renewal. If an insured does not respond to a request to update matters but pays the renewal premium, then the insured is taken to have informed the insurer that there are no changes.
The renewal documents in 2022 did not specifically inform the complainant of the duty. However, I am satisfied:
Amongst the circumstances outlined in the PDS for when the complainant would be required to contact the insurer ‘as soon as possible’ was if:
- any detail on your [COI] is no longer accurate, such as but not limited to the description of the home
…
- trespassers or squatters occupy the insured address
The 2022 renewal documents said of the insured home that it was ‘in good condition and well maintained’. The complainant did not inform the insurer that any changes were required. Accordingly, the renewal terms became the COI for 2022/2023 policy period.
Based on the above, the insurer says the home was not ‘in good condition and well maintained’ at the time of the last renewal. It says the home had a ‘known squatter problem’ and people of ‘poor repute’ were:
breaking into the property and removing goods from within. The property was being unlawfully used by other persons and was not secure
The insurer relies on correspondence sent to the complainant from the local council requesting that she attend to problematic issues at the property. Most of these issues related to failing to mow the grass. On 24 May 2020, the complainant and her husband emailed the local council to say:
We are working on getting the yard mowed but we have had ongoing problem with strangers entering the property and ransacking the place. The house has been locked and they keep cutting the barrel bolts. We have had furniture taken and what is through the backyard is what they have left there. The police have been made aware of what is going on there. [sic]
Based on the above, I am not satisfied the insurer can show the home was not secure. The complainants clearly note that the ‘barrel bolts’ were being cut to obtain entry.
I acknowledge the complainants were aware that people had broken into the home. However, I accept they took steps to address it. They notified police, placed signs to warn people away from the home and replaced damaged security devices. No claims were made.
The renewal documents made no reference to home invasions, or illegal and unapproved use of the home by trespassers or squatters.
Whilst I acknowledge the COI directed the complainant to the PDS for ‘further details’, I do not consider the complainant failed her duty. The reference in the PDS is for the complainant to notify the insurer if ‘trespassers or squatters occupy the insured address’ (my emphasis).
I consider the reference to occupation can reasonably be interpreted as illegal tenancy, rather than isolated incursions (which might result in a claim). There is no persuasive evidence of illegal tenancy or squatting. There is no persuasive evidence of what illegal conduct took place at all, as the insurer did not pursue this issue further than what the complainant reported to it.
The underwriting guidelines applicable at renewal in 2022 specified an automatic decline if:
The property is being occupied or used by trespassers/squatters or unauthorised persons
This is more descriptive than what was asked of the complainant in the PDS. She was not to know this at the renewal of the policy and was not asked any specific questions about squatters or trespassers.
Given this, I am not satisfied the insurer can show the complainant was required to report the known incursion issues in 2022 or before. The insurer did not directly ask her about the issue.
There is no persuasive reason to believe she should have known that some non-claim related break-ins (which she addressed with police) were relevant.
The insurer says overall the insured building was not ‘in good condition and well maintained’ at renewal in 2022.
The COI defines a building ‘in good condition and well maintained’ as having:
no leaks, holes, damage, rust, or wood rot in the roof, gutters, windows, walls, floors, fences, or anywhere else; no damage to foundations, walls, steps, flooring, ceilings, gates, and fences and is structurally sound; no damage from or infestation of termites, ants, vermin, or other pests; no broken, missing glass or boarded-up windows. Refer to the PDS for further details.
The exchanged information confirms that prior to the claimed loss:
I acknowledge the complainant was required to inform the insurer of the broken windows and other minor damage at the home. However, the insurer did not establish when this damage occurred, or even if it was present at renewal in 2022.
Whilst the PDS requires the complainant to immediately inform the insurer of any change to the property’s condition, the insurer focusses solely on its condition at renewal. The underwriting statutory declaration says:
Had all of the pre-existing deterioration, lack of maintenance, poor condition and known squatter issues been disclosed to [insurer], at the time of renewal 02/12/2020 and or any of the subsequent renewals [cover] would have been declined.
It is not known if any of the reported damage was present when the policy was last renewed.
The condition of the home was substantially the same over a 17-year period. Whilst there were some recent incidents involving possible damage, it is not clear when these incidents occurred and on what dates (or when the complainant became aware of them). More importantly, it is not known if the damage was present at the time of the last policy renewal.
Based on the exchanged material, I am not satisfied the insurer can show it had grounds to deny the claim. I am not persuaded the complainant failed to comply with her duty when she last renewed the policy in 2022.
Given this, I am not satisfied the insurer has shown it had grounds to deny the claim or cancel the policy.
The insurer is required to reinstate the policy, effective from 2022. It is required to ascertain the extent of the loss and settle the complainant in accordance with the terms and conditions of cover as it was in 2023.
The insurer has not successfully shown the home was not in ‘good condition’, prior to renewal in 2022. The exchanged material does not show the complainant failed her duty to take reasonable care to not misrepresent at renewal. Given this, it would not be fair to permit the insurer to deny the claim.
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.
