AFCA determinations public reporting

Determination

 

Case number	12-00-1076074
Financial firm	AAI Limited

 

 

Case number: 12-00-1076074 30 August 2024

1.             Determination overview
   1.      Complaint

The complainant’s home air-conditioning (AC) unit’s compressor suffered a burnout in January 2024. He claimed for the damage under his home and contents insurance policy with the financial firm (insurer), which says:

• a $5,000 excess is payable for a building claim
• a $750 excess is payable for a contents claim.

The insurer accepted the claim and said the complainant must pay the $5,000 building claim excess. It says the AC unit forms part of his home, so the building claim excess applies.

The complainant says the AC unit is a content item, so the applicable excess is $750.

2.      Issues and key findings

Is the insurer entitled to impose the building excess?

Yes. The AC unit forms part of the complainant’s home building (rather than his contents) for the purposes of the policy. Given this, he can only claim for it under the motor burnout cover provided with his home building cover, to which the building excess applies.

Why is the outcome fair?

The complainant can only claim the AC unit’s damage under the home building aspect of his insurance cover. He cannot claim the damage under the home contents aspect of his insurance cover. Given this, it would not be fair to require the insurer to apply the home contents claim excess to his claim.

3.      Determination

This determination is in favour of the insurer.

The insurer is not required to take any action on the claim or complainant, other than to settle the claim based on a $5,000 excess.

2.             Reasons for determination
   1.      Is the insurer entitled to impose the building excess?

Yes. The AC unit forms part of the complainant’s home building (rather than his contents) for the purposes of the policy. Given this, he can only claim for it under the motor burnout cover provided with his home building cover, to which the building excess applies.

Complainant must show a claim for the damaged compressor under the policy

The complainant has the initial onus to show a claim for the AC unit’s damaged compressor under the terms of the policy. Once established, the onus is then on the insurer to prove an exclusion or limitation applies if it seeks to deny or limit its liability for the claim.

Motor burnouts are separately covered under home and contents insurances

The complainant’s policy is made up of a certificate of insurance (COI), a home building insurance product disclosure statement (PDS), and a home contents insurance PDS. All of this form the terms of his home and contents insurance covers. The relevant policy extracts are set out in section 3.2 of this determination.

In summary, the policy covers the complainant’s home and contents separately and individually although there is only one policy number and COI. Motor burnout cover is also separately and individually given under both types of insurance cover as ‘additional cover’.

Excess that applies depends on which motor burnout policy provision applies

The insuring provisions for motor burnouts are framed identically in the respective home and contents PDSs, save that a burnt out or fused electric motor must form:

• ‘part of the building’ to be covered under the home insurance’s motor burnout cover
• ‘part of your contents’ to be covered under the contents insurance’s motor burnout cover.

The insurer accepts the complainant has claim for his AC unit under the policy. Given this, the only issue for consideration is whether the AC unit forms part of his home building or part of his contents. This would determine whether the home or contents aspect of his insurance cover applies to his claim and ultimately, which policy excess applies.

Insurer says the claim is a building claim, so the building excess applies

The insurer says the complainant is making a building claim because his AC unit is ‘permanently attached and hardwired’ to his home. It says this is supported by the fact:

• the home PDS says ‘building’ includes ‘any permanently housed, connected or wired electrical appliances (e.g. a wired oven)’
• the COI identifies the home’s AC system as a building item
• the contents PDS says contents are items ‘not permanently to the building or insured address such as… unfixed electrical goods and appliances not housed in a cabinet’.

The insurer also says:

• the home PDS only provides one instance where an AC unit would not be considered ‘building’, which is where such a unit is ‘attached within a window’
• the contents PDS provides an instance where a permanently attached AC unit may be considered ‘contents’, which is where a home is a unit, and its AC unit is not considered to be building under a relevant law.

The insurer says these exceptions do not apply to the complainant’s claim because his AC unit is not attached ‘within a window’, and the home is not a unit or townhouse.

Given this, the insurer says the building excess applies.

Complainant says his claim should fall within his contents cover

The complainant says the motor burnout provision in the contents PDS clearly mentions electric motors within AC units. He says this is ‘evidence enough’ that he can claim for the damage under his contents cover. He also says:

• he understood the policy’s motor burnout cover to be part of his contents, and this was why he adjusted the policy’s excesses
• the insurer initially told him the excess was $750 and only said the excess is $5,000 after he had paid the $750.

AC unit is part of home building on proper construction of the policy

I acknowledge AC electric motors or compressors are identified in the contents PDS motor burnout covering provision. However, this must be read in the context of, and subject to, a preceding requirement the AC unit must form ‘part of your contents’. The references to electric motors and compressors cannot simply be read in isolation.

When properly considered in the overall context of the policy, I accept that the complainant’s AC unit forms part of his home building, rather than his contents.

Amongst others, the policy defines ‘building’ as things that have been identified as ‘The building’ in the COI or ‘any permanently housed, connected or wired electrical appliances (e.g. a wired oven)’. It defines ‘contents’ as ‘items which are not permanently attached to the building or insured address’.

The complainant has not shown his AC unit is portable or otherwise not permanently attached to his home building. Nor has he shown that it is attached within a window of the home. The complainant has not disputed that the unit is permanently attached and hardwired to his home, while the COI identifies it under ‘The Building’:

Ducted AC/Heating:   Yes

The complainant is also an owner occupier of a standalone home. This means the exceptions identified under the following headings (in the contents PDS) do not apply to his AC unit:

• ‘If contents are insured in a unit’
• ‘If contents are insured in a property that is not a unit and you are a tenant’.

Given this, the AC unit can only form part of the complainant’s home building within the meaning and for the purposes of his policy.

Claim can only be covered under home cover, so building excess applies

For these reasons, the complainant cannot claim for his damaged AC compressor under the contents PDS’s motor burnout cover. He can only claim for it under the home building PDS.

This means the complainant’s claim falls under the home building aspect of his insurance cover, to which the building claim excess applies.

2.      Why is the outcome fair?

The complainant can only claim the AC unit’s damage under the home building aspect of his insurance cover. He cannot claim the damage under the home contents aspect of his insurance cover. Given this, it would not be fair to require the insurer to apply the home contents claim excess to his claim.

3.             Supporting information

1.      AFCA process

AFCA’s approach is based on fairness

AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:

• the legal principles
• applicable industry codes or guidance
• good industry practice
• previous decisions of AFCA or its predecessor schemes (which are not binding).

The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. I have reviewed and considered all information the parties have provided.

While the parties have raised several issues in their submissions, I have restricted this determination to the issues that are relevant to the outcome.

2.      Relevant policy wordings

Home Building Insurance PDS

What we cover as the building

We cover

The building that you own or are responsible for and use primarily for domestic purposes and described as ‘The building’ on your certificate of insurance (if it shows a description of ‘The building’) including the following at the insured address: … •          any permanently housed, connected or wired electrical appliances (e.g. a wired oven); …

What we don’t cover as the building

We don’t cover

Building does not include: •          anything that is contents; … •          air conditioners attached within a window;

…

Additional cover that comes with your policy

…

Motor burnout

We cover

The burning out or fusing of electric motors, that happens in the period of insurance, in household equipment or appliances which are part of the building and where the motor is less than 7 years old. Cover includes the reasonable cost to repair or replace: •          the electric motor or compressor containing the motor; •          an entire sealed unit, filter, dryer and re- gassing if the electric motor is inside a sealed refrigeration or air conditioning unit;

Home Contents Insurance PDS

What we cover as your contents

We cover

Contents are your household items that you own or are responsible for and use primarily for domestic purposes. Contents are items which are not permanently attached to the building or insured address such as, but not limited to: … •          unfixed electrical goods and appliances not housed in a cabinet; …

If contents are insured in a unit

Contents also include the fittings in a unit if the fittings are not legally part of the unit building according to the relevant state law. The fittings included are limited by law, and depending on the location of your unit and could be:

…

•          air conditioners (ducted and split system) and spas for the sole use of the unit owner or occupier;

...

We will not cover any item which is legally part of a unit building according to the relevant state law. It is your responsibility to determine whether a fitting is legally part of a unit building according to the relevant state law. 

 

If contents are insured in a property that is not a unit and you are a tenant

When you are a tenant of a property that is not a unit, contents also include any items used primarily for domestic and residential purposes, which are permanently attached to the insured address and which you own.

What we don’t cover as your contents

We don’t cover

Contents does not include: •          any part of the building, unless ‘If contents are insured in a property that is not a unit and you are a tenant’ applies to you;

…

Additional cover that comes with your policy

…

Motor burnout

We cover

The burning out or fusing of electric motors, that happens in the period of insurance, in household equipment or appliances which are part of your contents and where the motor is less than 7 years old. Cover includes the reasonable cost to repair or replace: •          the electric motor or compressor containing the motor; •          an entire sealed unit, filter, dryer and re- gassing if the electric motor is inside a sealed refrigeration or air conditioning unit;