Insurer denies claim under insurance policy due to 72-hour flood exclusion clause

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An owner purchased home and contents insurance from Hollards on March 17, 2021.

On March 19, 2021, the insured’s home was flooded by a river.

The insured filed a claim with Hollards.

Why was the claim denied by the insurer?

Hollards rejected the claim on the grounds that the policy contained an exclusion clause which allowed Hollards to avoid liability for cover for flood damage that occurred within 72 hours of the start of the policy.

After the claim was filed, Hollards provided emergency accommodation and helped remove damaged items from the property.

The insurer notified the insured that it was considering compensation for property damage under the home and contents insurance policy.

The insured said he spoke with a Hollards representative on April 12, 2021 and was told that the 72-hour disclaimer only applied to newly purchased homes.

Hollards ultimately relied on the exclusion clause to deny compensation for property damage.

The insured filed a complaint with the Australian Financial Complaints Authority (AFCA) arguing that Hollards had failed to inform him of the disclaimer and had been misled into believing that the disclaimer did not apply to his situation.

The AFCA upheld Hollards’ decision to deny the claim. The AFCA’s decision was based on the fact that the 72 hour disclaimer was specifically mentioned in the Product Disclosure Statement (PDS), which the insured confirmed having read and understood.

On this basis, the AFCA concluded that Hollards “was entitled to rely on the terms of the policy”.

What about exceptions to the 72 hour exclusion?

The AFCA noted that the 72-hour exclusion did not apply in cases where an insured transferred an equivalent policy from another insurer without a break in the policy’s cover.

In this case, the insured’s property was uninsured for one week from purchase, from March 10, 2021 to March 17, 2021 and therefore could not benefit from any exception to the exclusion clause.

Did the insurer engage in unfair or unreasonable conduct during the review of the claim?

The AFCA notes that the insurer at no time informed the complainant that it would accept the claim despite the exclusion. Regarding the discussion with an employee of the insurer, the exclusion did not apply to newly purchased properties, the AFCA considered this to be an error and has been corrected by the insurer within a few days and therefore did not constitute unfair conduct by the insurer.

This is an important reminder for those affected by the floods to consider the terms of their policies. If you have any questions about an insurer’s decision on property damage, contact us today.

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