Dispute Over 'Upgrades' to Damaged Farm Buildings Ends in Favor of Insurer

The Damage and the Claim

In June 2021, a storm caused damage to the employees’ quarters building on the farm. While the insurer, HDI Global Specialty SE, acknowledged the damage as "minor" and agreed to cover repair and replacement costs for parts of the roof, veranda, and asbestos removal, the claimant disputed the offer.

Engineer's Recommendation and Cost

The claimant provided a report from their engineer, who recommended demolishing and rebuilding the two buildings and veranda. Additionally, a quote for the repairs amounted to $112,000.

Severe Damage and Construction Issues

The engineer's report highlighted severe damage to the southern ends of the building, resulting in the collapse of parts of the veranda. It concluded that repairing the damage wasn't practical due to the building's age, pre-existing condition, and non-compliant construction.

An insurer-appointed building consultant determined that the veranda collapse was due to wood rot and identified significant construction issues with the building. They found it surprising that the building had lasted as long as it did and agreed that demolition was warranted due to its advanced state of degradation, unrelated to the storm event.

Policy Coverage and Fairness

The Australian Financial Complaints Authority (AFCA) panel acknowledged that the farm insurance policy covers repairs to return damaged buildings to their original condition. However, they concluded that it would be unfair for the insurer to pay for the demolition and reconstruction costs, as these would be considered upgrades beyond the building's original state.

The AFCA panel stated, "The policy does not cover the cost of upgrading the building to a better condition than it was when new." They emphasized that the need for demolishing and rebuilding was due to poor construction, age, and lack of maintenance, not storm damage.

The Panel's Decision

The AFCA panel agreed that the insurer's offer to settle the claim for $11,220, based on the quote from their building consultant, was fair to repair the storm damage. However, they required the insurer to attach a 10% contingency due to the risk associated with the cash settlement.