Stephen owns a small rental property in Christchurch and approached an adviser for help with insurance. The adviser gave Stephen several policy options, one of which suited his needs. Stephen took out the insurance and tenants moved in.
A year passed with no issues. The adviser then contacted Stephen when his policy was due for renewal. After a few weeks, Stephen considered his options and renewed his insurance cover.
A few months later, the tenants in Stephen’s property moved out and as part of the move-out process, Stephen arranged for meth testing to be carried out. The testing showed that a small amount of meth residue had been found in the kitchen. Full decontamination of the kitchen was recommended in the report along with other minor repairs.
Stephen contacted his adviser who assured him that his insurance would cover the cost of the clean-up of the kitchen and any loss of rent while it was carried out. Stephen was told no one was to enter the property while the clean-up was taking place.
The adviser then made a claim with the insurer, but it was declined. The insurer said that the meth levels found in the kitchen were below the threshold to trigger their cover. The insurer told Stephen that, before his last renewal, they had increased the meth levels which must be met for a claim to be paid. Consequently, the loss of rent benefit was also not payable. The insured said they had told Stephen’s adviser of the changes and he should have been made aware.
Stephen complained to FSCL that he was not made aware of the changes to his policy by his adviser, either at the time of the changes nor when he renewed his policy. He wanted the adviser to cover the cost of the repairs and the loss of rent also.
The adviser accepted that they could have gone further in making Stephen aware of the changes made to his policy and that they could have been quicker to recognise that he wasn’t covered. The adviser offered $1500 as compensation which Stephen declined.
The Government recently commissioned a report into New Zealand’s attitude to meth and contamination. Following the report, some insurers raised the threshold for the amount of meth contamination required to trigger cover under the policy.
The adviser gave Stephen almost 2 months to look over the insurance policy and ask any questions. We considered this sufficient time for Stephen to consider the policy and determine whether it served his purposes.
We considered it unreasonable to expect the adviser to have explicitly pointed out the insurer’s rise in their meth threshold to Stephen. We decided that the $1500 offered by the adviser to be reasonable.
Insights for consumers
Advisers have a positive ongoing duty to make sure the insured knows and understands the extent of their insurance cover and any changes in their policy. It is not for the adviser to determine whether such a change affects the insured’s needs; the information still needs to be passed on. However, the insured is also responsible for reading and understanding the policy.