Who Burnt the House Down?

Transcription

1 Who Burnt the House Down? Presenter Ron Beazley Ombudsman and Panel Chair, General Insurance, FOS CASE STUDY Home Building destruction of house by fire denial of claim non disclosure Sections 21, 28(3) and 26 Insurance Contracts Act (1984) Background 1. The Applicant held home building insurance with the Financial Services Provider (FSP) from 20 July The policy provided for building cover of $157,295 subject to an $800 excess. There was no contents cover. 2. On 3 January 2010, the Applicant s house was burnt down in a fire. It was a total loss and a claim was lodged with the FSP. 3. The FSP investigated the claim and determined that the loss was caused through human intervention, though no direct allegation was made against the Applicant. The FSP denied the claim, citing several clauses in the policy, including occupancy, the undisclosed criminal records of the tenants, the alleged state of the building, an alleged failure to secure the premises and general issues of disclosure under the policy. It also alleged the Applicant failed in her obligations to make proper disclosure. 4. The Applicant disagreed with the decision and sought indemnity under the policy, alternately for the sum insured of the premises, or for a replacement of the building. Issues in dispute 5. Whether the FSP is entitled to deny the Applicant s claim and cancel the policy as of the date of inception. Relevant policy provisions Conditions of cover 2. Buildings not lived in for more than 60 days If the buildings have not or will not be lived in for any period in excess of 60 days, we will not pay for loss or damage... Who Burnt the House Down? Case Study 1 of 6

2 3. Taking precautions We will not pay for loss, liability, injury or damage if you do not: b. secure your buildings against unauthorised entry whenever your risk address is left unattended by you or any other person; Page xx of the PDS Your Duty of Disclosure Before you enter into an insurance contract... [you must] provide us with the information we need to enable us to decide whether... your proposal for insurance is acceptable When you answer these questions, you must: give us honest and complete answers; tell us everything you know; and tell us everything that a reasonable person in the circumstances could be expected to tell us... When you renew, vary, extend, reinstate or replace the policy your duty is to tell us... every matter known to you which: you know; a reasonable person in the circumstances could be expected to know; or is relevant to our decision whether to insure you and whether any special conditions need to apply to your policy. Page yy of the Insurance Renewal for the Period 20/7/09-20/7/10 Property Condition: This property is structurally sound... secure and well maintained... Property Occupancy: The property is permanently owner occupied Relevant law Ss 21; 21A; 28; 59, and 60 of the Insurance Contracts Act (1984) (the Act) 6. A full exchange of information has taken place between each party. The Applicant s Submission 7. The Applicant submits that her property was burnt down in circumstances of which she was unaware. Who Burnt the House Down? Case Study 2 of 6

3 8. The property was in a generally sound condition and she lived in it at the time of the policy s inception. After a few months in 2005, she moved out and thereafter the property was alternately inhabited by her sons or herself at different times. 9. The fire caused the total destruction of the building and the policy should respond and provide cover. The FSP s Submission 10. The FSP submits that the Applicant did not reside in the premises, which it alleges was largely unoccupied throughout the period of insurance. 11. It relies upon a body of circumstantial evidence to suggest that the property was in a poor state and not properly secured as required under the policy at the time of the fire. 12. The Applicant s sons were occasional tenants, and their extensive criminal records made them an unacceptable risk consideration. 13. The FSP contends that the Applicant failed to disclose issues relevant to the consideration of risk under the policy, and pursuant to Section 28(3) of the Act, it is entitled to reduce its liability for the claim to Nil and refund all premium payments under the policy from inception in Accepted Facts 14. The Applicant s building was actually two former separate units that had been joined into a single property. Electricity was separately divided between the two units, but the rear unit was disabled and was not connected at the time of the loss. 15. After the destruction of the property, the FSP commissioned a fire expert to investigate and provide a report on the probable cause. 16. The expert concluded that the fire emanated from the rear unit area of the house, where no electricity was connected. Based on this conclusion, and the fact that the insured was the last person at the home, and observed no problems there and did not smoke (which excluded a discarded cigarette), the expert concluded that human intervention was the cause of the loss. 17. Police investigated the incident, but the outcome of this investigation is not known and has not been relied upon by the FSP in making its decision regarding indemnity. 18. In this dispute the FSP relied upon policy exclusions, condition precedent and non-disclosure by the Applicant, to avoid cover under the policy. It is appropriate to consider each of these issues separately. Occupancy 19. The FSP determined through its investigations that the property had been unoccupied for long periods of time over the course of the insurance period, noting that the Applicant stated she moved out in or around The Applicant advised that she and her sons periodically inhabited the building. The evidence provided revealed both sons had criminal histories which resulted Who Burnt the House Down? Case Study 3 of 6

4 in time spent in and out of prison over the 5 years of the policy. The extent of the Applicant s knowledge of these matters is unclear. The sons vacated the property in approximately Christmas 2009 to move to Brisbane in search of work. 21. The FSP relied upon anecdotal evidence from neighbours to suggest no one had been present at the premises for the previous few months, and an invoice from the power company which purportedly shows that almost no electricity had been used at the house since prior to October However, the water consumption indicated it was in regular use at the property, and the use of electricity does not definitively determine that the property was unoccupied, only that it is a possible explanation. 23. The policy defines a building as unoccupied if it has not been lived in for any period in excess of 60 days. The Applicant contends that her sons had been in the property prior to Christmas It would appear there was no permanent resident at the property, although the Applicant contends that she visited regularly and intermittently stayed the night. The Applicant s sons were not interviewed. Question 1: Is there sufficient to determine on the balance of probabilities whether the property had ever been unoccupied for a continuous 60-day period? Failure to disclose the state of the building on the Duty of Disclosure 25. The FSP contended that the condition of the home was appalling. This opinion was based strongly on anecdotal information provided by neighbours and the police. 26. Various reports were considered as to the presence of stray motor vehicles on the property, broken windows, graffiti and poor living conditions. 27. The Applicant acknowledged that the exterior of the home was unsightly, but said that she was slowly renovating the building with the assistance of her sons, and that it was in a very liveable condition. The Applicant provided photos that reveal a broken window at the property, and this appears to have been an ongoing concern. The Applicant also stated that some of the damage present in the photos was attributable to other former tenants who broke into the premises after being evicted. It is accepted the photos are undated and limited in scope. 28. The Applicant also provided a statement, allegedly from the former owner, to say that the building was in a good state when sold. This may be true, but it may have deteriorated. Criminal history of the Applicant s sons 29. The FSP contended that the Applicant had a duty to disclose the criminal histories of the occupants of the dwelling. It can be assumed the FSP was referring to policy renewal. The house was listed as owner occupied, which was only the case in the initial months. By admission, it is accepted that the main residents in the period leading up to the fire were the Applicant s sons. The criminal record extracts confirm that occupancy of the property by the sons Who Burnt the House Down? Case Study 4 of 6

5 would have been sporadic, in between periods in and out of jail, and other unspecified times when they may not have been there. 30. The Applicant contended that her sons were legitimate tenants, and that she was paid rent. She also claimed to have occasionally or intermittently stayed at the premises herself, and that she was substantially unaware of her son s criminal histories. 31. At the time of policy inception, the Applicant was allegedly asked a number of questions regarding the house and the arrangements. The internet policy screen dump noted that the building would not be let on a commercial basis, and that the Applicant (or anyone permanently residing at the address with her) had no criminal past. 32. At the time of inception, the Applicant intended to inhabit the building, but circumstances changed and she did not inform the FSP at any of the subsequent renewal periods of any changes in the living arrangements or occupancy of the premises. 33. The Applicant denied any knowledge of completing the internet submissions for cover, or being asked the relevant questions by a representative of the FSP. 34. The FSP tendered no evidence as to the circumstances surrounding the commencement of the policy and its provision of the duty of the disclosure or the questions it asked. 35. The FSP contended it would not have accepted the Applicant s sons as an acceptable risk if they were correctly noted as the occupants. A statutory declaration was submitted to this effect from the FSP s underwriter, although it stipulated that no cover would have been provided had the underwriting team been aware of the various conditions reported, such as the condition of the home, that it was allegedly unoccupied, the criminal history of the occupants and the unsecured state of the home. 36. The Applicant contended that she was substantially unaware of her sons criminal histories, although she was able to provide information as to the jail term served by one of them. Question 2: Can the FSP rely on the relevant (and which) sections of the Act to prove the Applicant has breached her duty of disclosure? If so what are the consequences of the breach? Security of Building 37. The FSP s fire expert located a number of locks from the relevant entrances to the home, in his investigations into the fire. 38. Two bolt type locks from the front of the home appear to have been found in the unlocked position. They were the sliding type of horizontal bolt 39. The Applicant stated that she attended the property on the day prior to the fire and noticed refuse in the property that should not have been present. This was not the first time this had occurred and the applicant suspected a break-in as she did not believe that the material was left there by her sons. Who Burnt the House Down? Case Study 5 of 6

6 40. The Applicant notes that when she had previously been aware of a break-in, she had immediately obtained new locks for the doors. She was unable to do this on this occasion as the break-in occurred over a weekend. 41. The FSP in its IDR response letter dated 31 May 2010 in relation to this aspect of declinature noted We also draw your attention to the aforementioned policy exclusion which states that we will not pay for loss or damage if you do not.. secure your buildings against unauthorised entry whenever your risk address is left unattended In assessing this claim the FSP employed the services of a professional investigator who extensively interviewed the Applicant for more than two and half hours on 6 January The typed transcript reveals that out of a total of 487 asked questions, 22, related to the relevant condition precedent (question 254 to question 276). The Applicant clearly believed, she had in situ, adequate sliding bolts and padlocks to secure the premises. 43. In answering the investigator s questions the Applicant stated I do not know what other security measures I could have taken, it was Saturday afternoon and the hardware store was closed, the local food store may have had more padlocks in stock. I did not look and as the padlock on the front door was not found, it seems reasonable to say it would not have prevented the house fire which occurred in the early hours of the following day. Question 3.1: Is the obligation to keep the premises secure a pre condition of the contract or an exclusion as stated by the FSP? Question 3.2: What is the consequence of the distinction? Question 3.3: Is the FSP entitled to rely on the breach of condition/exclusion to deny the claim? Question 4: Are there any other relevant matters worth considering? Who Burnt the House Down? Case Study 6 of 6