The claim was initially submitted in January 2022 for damage incurred to the man’s remote metal home in New South Wales. The insurer denied the claim on the grounds that the property was fraudulently misrepresented in terms of its status and functionality.

The policyholder, under heavy medication due to his illness, was questioned by the insurance company’s investigators. Unfortunately, he passed away roughly five months following the submission of the insurance claim. His estate's executor took over the complaint afterwards.

Recently, the Australian Financial Complaints Authority (AFCA) determined that the insurer, IAG, did not provide adequate evidence showing that the policyholder had breached his disclosure commitments. Thus, they must honour the claim.

According to AFCA, “Even if there had been a breach, the insurer has not convincingly shown that it resulted in the renewal of the policy when it would not have been otherwise. Thus, it is fair that the insurer accepts the claim.”

AFCA pointed out that IAG did not submit a declaration from its underwriters to either prove it would not have undertaken or renewed the policy. Despite cautions regarding potential adverse inferences, the insurer failed to provide necessary documentation on its underwriting practices pertaining to this case.

Originally, IAG contended that the policyholder had wrongly described the condition of his property upon policy initiation in October 2019, claiming it was watertight, structurally sound, secure, well-maintained, and inclusive of functional kitchen and bathroom facilities, and specifying its construction date as approximately 2019.

The policy contained a clause explicitly stating, “We don’t insure buildings under initial construction.”

AFCA’s investigation found that, as of the relevant policy renewal date in October 2021, the property's construction was completed, and it had been continuously occupied for over a year, meeting structural and maintenance codes.

“Each renewal constituted a new insurance contract,” the ombudsman declared.

Moreover, AFCA emphasized that the allegation of fraud, which carries grave implications, wasn’t sufficiently supported given that for a misrepresentation to amount to fraud, it must be made either knowingly or recklessly.

EVEN if I had determined that the policyholder breached the disclosure duty—which I have not—the insurer did not provide necessary proof to show it would not have entered the 2021-22 policy period without the alleged breach,” AFCA noted.

In their ruling, AFCA also highlighted the insurance contract and product disclosure statements omitted critical information regarding the duty to avoid misrepresentation, relevant disclosure duties, or consequences of any such breaches.

For more information on the ruling, it can be reviewed here.

This article has been adapted from one originally published by Insurance News Magazine.