When Insurers Deny Mould Claims in NSW: Common Grounds for Refusal and How to Appeal

Having a mould claim denied by your home insurer is a frustrating, and increasingly common, experience for Illawarra homeowners. Insurers have become significantly more sophisticated in their claims assessment, and the standard home and contents policy contains exclusions that are applied broadly when mould is the presenting issue. Understanding why claims are denied and what your options are for challenging those decisions can make the difference between a successful claim and paying for remediation out of pocket. See our home insurance and mould guide for background on what policies typically cover.

Quick Answer (BLUF)

Insurers most commonly deny mould claims by arguing the mould resulted from “gradual deterioration,” “lack of maintenance,” or a long-term leak rather than a sudden insured event. Appeals should be lodged first through the insurer’s internal dispute resolution process, then if unresolved within 30 days, through the Australian Financial Complaints Authority (AFCA). A professional mould inspection report supporting a sudden, insured cause can significantly strengthen an appeal.

Why Mould Claims Are Denied

The “Gradual Deterioration” Exclusion

Most home insurance policies cover sudden and accidental damage but specifically exclude loss or damage caused by gradual deterioration, wear and tear, or a defect. Mould almost always involves a gradual process, even if a pipe burst, the mould didn’t appear until days or weeks after the water event.

Insurers use this exclusion by arguing that mould is itself a gradual condition, or that the underlying moisture source that caused the mould was a gradual, not sudden, event.

The “Maintenance” or “Neglect” Argument

Policies typically exclude damage the policyholder could have prevented with reasonable maintenance. An insurer may argue that:

• A roof leak that allowed mould to develop should have been noticed and repaired earlier
• Visible mould should have been treated before it became a structural problem
• The lack of adequate bathroom ventilation represents negligent maintenance

This argument is often applied where a property has been unoccupied for periods, or where the mould is widespread, implying it was present for a long time before action was taken.

The Water Ingress Exclusion

Many policies exclude damage caused by water seeping, leaking, or entering gradually, as opposed to a sudden burst, storm inundation, or escape of liquid from a fixed appliance. A slow roof leak that causes mould over months, or rising damp, will typically be characterised as gradual water ingress and excluded.

The “Vermin and Insects” Exclusion Extension

Some policies specifically list mould as an excluded peril alongside vermin, insects, and birds. Review your specific policy document carefully, this varies significantly between insurers.

What Strengthens a Mould Claim

To have the best chance of a successful claim, or a successful appeal, you need to establish:

1. A sudden, insured event, burst pipe, sudden storm inundation, sudden appliance failure, as the proximate cause of the moisture that led to mould
2. Prompt discovery and reporting, evidence that you identified the event quickly and notified your insurer without unnecessary delay
3. Causal chain documentation, a professional assessment linking the insured event to the mould damage (not just the existence of mould)
4. No pre-existing mould or maintenance failures, evidence that the building was well maintained before the insured event

A professional mould inspection report prepared by a qualified assessor that documents the probable cause of mould, the timeframe of growth, and the relationship between a specific moisture event and the mould damage is the most valuable tool in an insurance dispute. Assessors experienced with insurance disputes know how to frame their findings in terms that directly address insurer exclusions.

The Internal Dispute Resolution Process

All licensed Australian insurers are required to have an internal dispute resolution (IDR) process. If your claim is denied:

1. Request the insurer’s reasons for denial in writing, they must provide these
2. Review your policy wording against the stated reasons, sometimes the insurer has misapplied their own policy
3. Lodge a formal dispute through the insurer’s IDR process, contact the insurer’s Complaints team or disputes officer directly
4. The insurer must acknowledge your dispute within 5 business days and resolve it within 30 days (for most disputes)
5. Submit supporting documentation, your independent inspection report, photographs, timeline, plumber’s or roofer’s invoices showing the original event

Escalating to AFCA

If the IDR process does not resolve the dispute within 30 days, or if you are not satisfied with the outcome, you can lodge a complaint with the Australian Financial Complaints Authority (AFCA), the external dispute resolution body for insurance complaints in Australia.

AFCA is free to access for consumers and small businesses. AFCA’s determinations are binding on the insurer (but not the complainant, you can still pursue court action if unsatisfied with AFCA’s determination).

What AFCA considers:

• Whether the insurer correctly applied the policy terms
• Whether the exclusion relied on actually applies to the facts of the case
• Whether the insurer acted fairly in its assessment
• The quality and objectivity of any expert assessments used by either party

AFCA has found in favour of complainants in mould cases where the insurer’s characterisation of the cause as “gradual” was not supported by independent expert evidence, or where the insurer’s own assessor’s report was found to be inadequate. An independent professional report from you as the complainant can directly challenge the insurer’s assessment.

Lodge online at: afca.org.au

FAQs

Is there a time limit on lodging an AFCA complaint?

Yes, you must lodge an AFCA complaint within 2 years of receiving the insurer’s final IDR response. Do not delay; document and act promptly.

What if my building and contents policies are with different insurers and they dispute whose obligation it is?

This is a known problem when, for example, a building insurer and a strata manager’s insurer are pointing at each other. AFCA can handle complaints against multiple financial firms in the same dispute. Document carefully which policy covers which component.

Do I need a lawyer to appeal a mould insurance decision?

Not initially. The IDR and AFCA processes are designed to be accessible without legal representation. However, if the amount at stake is significant (above $10,000 to $15,000), a brief consultation with an insurance dispute solicitor before lodging AFCA can be worthwhile for strategy.

Will getting an independent inspection help even after the insurer has already assessed the claim?

Yes. An independent report prepared after the insurer’s denial can address the specific grounds the insurer relied on. If the insurer said the mould was gradual and your independent assessor says the evidence is consistent with mould resulting from a sudden event that occurred within the policy period, that creates a direct factual dispute that AFCA will need to resolve. Contact us to arrange an independent assessment.