In January 2017, a tenant was replacing a clutch kit on his vintage vehicle and was welding a patch on the floor of this vehicle. This resulted in a fire that caused significant damage to the tenant’s rental property.

The tenant subsequently received demands from the property’s owner for payment of $786,000.00 for the damage to the property.

The tenant held a ‘special vehicle policy’ (Policy) for third party liability with the NRMA, and sought to be indemnified under the Policy against the claim for property damage. NRMA denied indemnity.

The tenant filed a complaint with the Australian Financial Complaints Authority (AFCA) seeking that NRMA pay the claim for damages in full.

The NRMA denied the claim on the basis that third party liability cover under the Policy only extended to the use of vehicle and did not cover damage that was in the tenant’s physical and legal control. The NRMA considered that the welding, which caused the fire, did not fall under the scope of ‘using’ the vehicle.

In particular, the NRMA relied on the following exclusion clause in the Policy:

We will not pay for damage to property belonging to, or in the physical or legal control of you or any person using your vehicle and/or any attached trailer, caravan or sidecar.

The tenant maintained that the NRMA had taken a narrow interpretation of the Policy and the exclusion did not apply in these circumstances.

AFCA considered that the Policy clearly outlined that vehicle ‘use’ included private repair works and servicing and, therefore, was satisfied that welding fell within the definition of ‘use of the vehicle.’

However, AFCA found that the NRMA was entitled to deny the tenant’s claim on the basis that the tenant had physical control of the rental property pursuant to his residential tenancy agreement.

Although the tenant argued he was a “mere tenant”, and no right to do anything at the property other than live there, AFCA considered that he could prevent or grant access to the premises at all material times and therefore had physical control of the area.

In this instance, the Policy was clear and it excluded accidental damage to property that was in the tenant’s physical and legal control.

This decision is an important reminder that not every event that leads to loss or damage will be covered by your insurance policy.