A pharmacy owner has been awarded an additional payout for flood damage after her insurer overpaid for repairs that “artificially eroded” her sum insured.

Guild Insurance initially paid out $516,831, of which $473,842 was for repairs to the business’ premises. 

But the business owner said Guild overpaid for the repairs and failed to conduct a reasonable audit of the builder’s invoices. She also noted some of the repairs were defective.

The policyholder provided a quantity surveyor’s report stating repair costs should have totalled $317,189 – close to the sum initially quoted by the builder.  

Guild said costs were adjusted due to changes in the plan and design, which were reviewed by its own surveyor. It acknowledged it did not seek comparative quotes because its builder had begun preliminary work.  

In a dispute ruling, an Australian Financial Complaints Authority panel finds the repairs should have cost $400,000 – a sum previously quoted in May 2022.  

The authority says the quote was arranged close to the time work began and the insurer erred in allowing costs to exceed it.  

“The complainant has shown that, on balance, the insurer has overpaid in relation to the building works and that has artificially eroded the sum insured,” it said.  

AFCA says the insurer must now pay an additional $6870 for contents it had previously excluded due to the sum insured being exhausted.

Guild must also work with the complainant to identify and repair all agreed defects.

Separately, the policyholder said Guild underpaid her $68,614 for a business interruption claim, but AFCA says she has not proved this.

She also said her pharmacy would have earned an additional $146,282 of revenue from government contracts and covid testing and vaccination programs if not for the claim issues.  

The AFCA panel says the lost revenue was not part of regular business operations and appears to be “lost business opportunities due to the claim and the insurer’s claim handling”.  

It notes her policy “does not cover consequential loss, including loss of opportunity”.

AFCA has also dismissed most claims under an “additional increased cost of working” cover, except for expenses relating to the installation of an alarm system and costs incurred as part of the business’ reopening.

Guild must also pay up to $5000 for professional fees incurred by the complainant, and $3500 in compensation for stress caused by its claim handling.  

See the ruling here.