Determination - Financial Ombudsman Service

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Nov 11, 2014 - General Insurance - Small Business/Farm Insurance - Computer & .... Loss of stock and delay in openin
Determination

General Insurance - Small Business/Farm Insurance - Computer & Electronic Breakdown - FSP Decision - Claim Amount

Determination Case number: 348410

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11 November 2014

Overview

1.1 Dispute A claim was lodged by the Applicant upon her retail services policy (the policy) held with the Financial Services Provider (FSP), for loss/damage arising from a fire event. The FSP accepted the claim, however, the Applicant remains dissatisfied with the FSP’s settlement of the claim and is seeking a review by the Service.

1.2 Issues and key findings Has the FSP fulfilled its obligations under the policy? The FSP has not fulfilled its obligations under the policy as:  it has not returned the Applicant to the position she was in prior to the loss  the FSP’s actions subsequent to authorising replacement of the damaged refrigeration units, with defective units, amounts to a failure to comply with its obligations under the policy. Is the Applicant entitled to compensation? The Applicant is entitled to compensation under the claim arising from the FSP’s management of the claim.

1.3 Determination This Determination is in favour of the Applicant. The FSP is to cash settle the Applicant for the reasonable cost of replacement of the defective refrigeration units and upon proof of loss, the reasonable cost incurred by the Applicant to remove and store the refrigeration units, if costs were incurred. The FSP is also to cover the Applicant for the loss of stock due to defective units, upon being provided with proof of this loss. To the extent that the claim is cash settled, the FSP is to pay i nterest upon the final settlement amount from 14 March 2014, until such payment is made to the Applicant, in line with Section 57 of the Insurance Contracts Act 1984 (the Act). The FSP is to arrange payment of $2,000 by way of compensation to the Applicant in line with the Service’s Terms of Reference (ToR) (which is not subject to an interest payment)

Case No: 348410

Determination

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Reasons for Determination

The dispute has been decided on its merits, doing what is fair in all the circumstances, having regard to the relevant law, good industry practice and code of practice. All the material submitted by the parties has been considered. I am satisfied that the documentation I have relied on has been provided to both parties and each party has had the opportunity to address any issues raised by the other. There were several issues in contention between the parties, of which some have been resolved, whilst others fall outside the Service’s jurisdiction (business interruption) and/or exceed the policy sum insured. This determination will limit consideration to those matters that remain in dispute and fall within the Service’s jurisdiction.

2.1 Has the FSP fulfilled its obligations under the policy? The FSP did not return the Applicant to her position prior to the fire event The Applicant lodged a claim for significant damage to the insured property due to a fire event which the FSP has accepted under the policy. The Applicant remains dissatisfied with the FSP’s settlement of the claim and maintains she has suffered further loss arising from the FSP’s management of the claim. The Claim in relation to the cash registers The evidence confirms that the FSP cash settled the Applicant for any loss or damage occasioned to the cash registers by the fire. The Applicant herself, replaced the cash registers and in those circumstances, the FSP is not required to attend to any ongoing problem with the cash registers. Replacement of refrigeration units (the units) by the FSP It is not in dispute between the parties that the units installed at the insured property were damaged during the fire event and for which the FSP authorised replacement of the units. The FSP appointed “J” to undertake and manage the reinstatement works under the claim. J prepared the scope of works , including replacement of the units and J arranged to source the replacement units from “F”. It is evident from the available information that once installed the units failed to function as required. The Applicant sought the assistance of both J and F in her attempts to address the issues with the units. There were over ten separate occasions where consultants were sent to the insured property in an effort to resolve the issues with the units, however, the efforts were unsuccessful. The reports submitted by independent consultants , subsequently appointed to the claim, establish that the units require replacement. The FSP has refused to authorise replacement under the claim on the basis that:  the sum insured available under the policy has been exhausted

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Determination

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the FSP in authorising and paying for the replacement units, installed in the insured property after the fire event, has fulfilled its obligations under the policy the issues identified with the units fall under the product warranty offered by the manufacturer and therefore it is for the Applicant to pursue this with F, as she is the one who has suffered the loss arising from the defects

The FSP is obliged to return the Applicant to her pre-event position I note during the course of this dispute the Applicant has sold the business, however, the units in question did not form part of the sale. The Applicant has retained possession of the damaged units, pending an outcome of the dispute. The Applicant maintains that the units can be returned to the FSP and the dispute settled by way of a cash settlement. The available evidence establishes that when F was approached by J seeking either reimbursement for the cost of the units purchased and/or for F to replace the defective units under its warranty commitments , F declined to do so. In response J sought to commence proceedings against F with the Department of Fair Trading (DFT), to enforce the warranty. J and later the FSP requested the Applicant sign up as a co-complainant to the proceedings which the Applicant, on obtaining legal advice, refused. The Applicant maintains the issue with respect to the defective units and F’s refusal to honour the warranty, are matters for the FSP and J to address, whilst she should be entitled to replacement of the defective units. The FSP’s obligations have been considered having regard to what is fair in all the circumstances, the relevant law, good industry practice and code of practice. I am not satisfied the FSP’s position, that having originally authorised replacement of the units, has fulfilled its obligations, is reasonable. Nor do I accept the FSP’s position, that the obligation now rests with the Applicant to take up the matter with F, with respect to the manufacturer’s warranty. The FSP’s obligations under the contract of insurance, accepted general insurance practices and acting with the utmost good faith, require the FSP to place the Applicant in the position she was in, prior to the loss. There is no evidence which establishes the refrigeration units installed at the insured property prior to the fire, were defective. Also, on the basis of the available evidence , it is clear that the defects with the units purchased from F, are not such that may have developed post installation. Rather, the defects identified arise from the construction of the units and would have existed from the time they were installed at the insured property. Therefore, I do not accept that the FSP, in authorising and arranging (through its agent J) replacement of the refrigeration units with defective units, has fulfilled its obligations under the policy. Rather, I find it very concerning that:  the FSP maintains such a position  has allowed this matter to remain unresolved for as long as it has;  and is of the opinion it is reasonable to leave it to the Applicant to pursue any rights available under the manufacturer’s warranty.

Case No: 348410

Determination

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In line with matters discussed above, I determine the FSP has not fulfilled its obligations under the policy. It is to (in line with this determination):  cash settle the Applicant for the cost of replacement of the defective units with refrigeration units of an acceptable standard, quality and reputation.  to reimburse the reasonable cost incurred by the Applicant for removal and storage of the defective units, upon proof that costs were incurred. The Applicant is to make the defective units available for collection by the FSP, at the FSP’s cost. Loss of stock and delay in opening business due to the defective units The Applicant has sought indemnity for the loss of stock and one month’s rent, which she maintains arose directly from the defective units and resultant delay in re-opening her business. Having considered the available evidence, I am satisfied there is sufficient information to establish the Applicant did suffer loss of stock arising from the issues with the units installed. The FSP’s position is that the policy sum insured has been exhausted, however, the fact is this loss arose from the actions of the FSP under the claim and not the insured event itself. Accordingly, the FSP is to arrange settlement of the Applicant’s claim for loss of stock due to the defective units, on the condition the Applicant is able to provide evidence of this loss. With respect to the delay in re-opening the business and the Applicant seeking indemnity for one month’s rent, I note cover under the policy does not extend to such a loss. Further, evidence also shows that the units may not have been the sole cause for the delay in re-commencing operation of the business. It is not in dispute the units did initially reasonably operate for a short period post installation. Accordingly, I am not satisfied the Applicant has, on balance, established an entitlement to the loss of rent claimed.

2.2 Is the Applicant entitled to compensation under the claim? The FSP is to arrange payment of compensation to the Applicant The Service’s Terms of Reference allow for an award of compensation up to $3,000, but only where there is an unusual degree or extent of physical inconvenience, time take to resolve the situation or interference with the Applicant’s expectation of enjoyment or peace of mind. The available evidence, as considered above, clearly establishes the Applicant did not receive the level of service which would reasonably be expected from an insurer. Further, although the FSP was responsive to the Applicant’s concerns its management of and responsibility taken for the issues was less than ideal. There was initially a repeated failure to acknowledge the issues with the units and subsequently a failure to fulfil its obligations under the policy. I accept that these circumstances would have been very inconvenient and would have interfered with the Applicant’s peace of mind, were physically inconvenient and remained unresolved for an unreasonable period of time. I consider that it is fair in all the circumstances that the FSP pay the Applicant $2,000 compensation for non- financial loss pursuant to the ToR. Case No: 348410

Determination

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Supporting information

3.1 Information relied upon     

the Applicant’s position the FSP’s position the assessor’s and available consultants’ reports the Product Disclosure Statement and Schedule of Insurance communications between the parties over the course of the claim.

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Determination

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