The claim was filed in February of last year, following storm damage to the property in December 2021. Auto & General, the insurer, declined the claim after inspections conducted by its builder and roofer revealed what they claimed to be misleading information regarding the property's condition at the time the insurance policy was purchased.
LB, the builder appointed by the insurer, reported severe rust and holes on the roof, as well as issues with the construction of the front patio. They also noted possible hail damage that appeared to have been present for at least three months. A roofer, engaged by Auto & General after LB's findings, corroborated the possibility of hail damage.
In its defense, the insurer pointed to a pre-purchase inspection report, arguing that the home had not been in good condition as stated by the policyholder. It also introduced a statutory declaration from the underwriter, stating that they would not have provided cover if they were aware of the property's condition.
Insufficient Clarity in Policy Question
The Australian Financial Complaints Authority (AFCA) panel, however, identified an issue with the insurer's policy question, stating that it did not adequately explain the term "in good condition". The panel highlighted that the definition provided in the application form lacked specificity and clarity regarding the extent of damage that needed to be disclosed.
"The application form gives a definition of 'good condition'," AFCA noted. "But it includes: 'No leaks, holes, damage, rust, or wood rot.' It is not clear from this definition what sort of damage and how extensive it must be before it needs to be disclosed."
The panel found that if a policyholder answered "no" to the question, indicating that the home was not "structurally sound and watertight", it would imply a different meaning than the original wording on the application form. AFCA expressed concern that this inconsistency had the potential to mislead and confuse consumers.
Ruling in Favor of the Policyholder
The AFCA panel accepted the complainant's explanation that she had answered the questions based on the findings of the pre-purchase inspection report, which had identified the property as being in good condition with only minor defects expected for its age and construction method. The panel also noted that the homeowner would not have reasonably been aware of the property's condition at the time of the event.
Based on these factors, the panel concluded that the complainant had acted in good faith and had not breached her duty to provide accurate information. Therefore, there had been no relevant failure on her part. The ruling requires Auto & General to accept the claim and reinstate the policy, with the policyholder being responsible for repaying the premiums.
To access the full ruling document, click here.
