Insurance Claims Dispute and AFCA: What Happens When an Insurer Says No

Securing a fair outcome from an insurance claim is rarely straightforward. Many

the process is complicated by internal rules, technical assumptions, or a simple “no” from the insurer.

With AFCA complaints hitting a record 111,000+ in 2025, up 14% from the previous year, this trend shows why specialist support can be crucial when claims are denied or undervalued.

A recent Australia Financial Complaint Authority (AFCA) determination demonstrates exactly how expert guidance can make a real difference in securing a fair outcome.

The Case: A Burst Pipe and the Insurer’s First Offer

In this case, the policyholders discovered a burst hot water pipe in the subfloor of their townhouse. The plumber immediately repaired the pipe but observed widespread dampness and mould affecting timber and floor surfaces. 

While the insurer partially accepted the pipe leak, they denied broader damage, including mould, floor deformation, and wall movement, citing long-term moisture and pre-existing drainage issues.

The insurer’s first cash settlement offer of $64,748 covered only part of the repairs and temporary accommodation. Independent quotes showed repair costs of between $148,000-$158,000, highlighting the gap between the insurer’s offer and the reality of the damage.

Why Pharos Loss Management Stepped In

Disputes over insurance claims can be overwhelming, especially when a major insurer insists its internal review is the final word. In this case, the insurer denied the claim for water damage, citing structural movement issues, leaving the policyholders stuck and unsure of their options.

Pharos Loss Management was engaged to cut through the technical complexity and policy jargon. Our team examined the evidence, highlighted gaps in the insurer’s assumptions and showed that the denial was not supported by evidence, the policy terms, or the Insurance Contracts Act 1984 (Cth). By intervening, we ensured the policyholders’ rights were protected, even after the insurer’s initial “no” seemed definitive.

How the Dispute Was Resolved

AFCA reviewed all evidence, including independent assessments confirming that the burst pipe caused extensive damage. The insurer’s report, which attributed the damage to long-term issues, was unsupported by evidence. 

AFCA ordered the insurer to:

• Settle the claim based on the policyholders’ quotations: $151,778 plus 20% contingency and interest (per Insurance Contracts Act 1984 (Cth), section 57)

• Pay temporary accommodation during repairs, in line with the policy terms

• Reimburse professional fees for the independent expert report from Pharos Loss Management ($5,000) under AFCA Rule D.5

• Pay non-financial loss compensation: $2,000 each

Notably, AFCA specifically recognised the importance of our assistance, stating:

“Independent assessment played a critical role in demonstrating why the insurer’s assessment was incorrect. Without it, the complainants could not have fairly challenged the insurer’s position or meaningfully participated in the repairs assessment.”

The final payout exceeded $221,000, nearly quadrupling the insurer’s initial offer and ensuring the policyholders could restore their home properly.

Key Takeaways for Policyholders

Cases like these are a clear reminder of a few important lessons for anyone navigating a claim dispute:

Initial “No” isn’t final 

An insurer’s first decision may not reflect your rights under the policy. Challenging insurance denial can lead to a fairer outcome.

Policy wording matters

Internal rules or assumptions do not override the terms of your policy. Understanding the contract is critical.

Independent expert reports can be crucial

Professional assessments can uncover flaws in an insurer’s reasoning and may be reimbursable under AFCA complaint process rules.

Specialist support adds value 

Expert guidance, such as a technical causation specialist, can significantly strengthen your position, helping you navigate complex disputes and ensuring a more accurate resolution.

The Pharos Perspective

At Pharos Loss Management, we go beyond simply completing the required forms. We combine technical expertise with deep policy knowledge to make sure your insurer treats you fairly. Whether it’s a motor vehicle claim, storm or water damage, or complex property loss, our focus is on achieving a fair and full outcome for our clients.

Need Help With Your Claim?

If your insurer says “no,” it doesn’t have to be the end of the story. Seeking professional advice, understanding your policy, and using the AFCA complaint process can make a real difference in securing a fair outcome.

Reach out for a confidential discussion about your options and next steps.

Contact Details:

+61 478 087 092

Declan@pharos.claims

www.pharos.claims