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Our binding decisions

Appliance damage - high voltage (surge) (D/99/21)

Case number: D/99/21
Date of Decision: 25 January 2000
Decision accepted by the customer: Yes

A customer contacted EIOV stating that a power surge at his premises had damaged a number of appliances, including a microwave oven, sensor light, security console and a computer. The customer and his wife worked on a casual basis and ran a small part-time business from home for which he used the computer. He said his repairer told him that fixing the computer would be the cheapest option. The customer went ahead because he believed, from the customer advice sheet he had been given by the company inspector who visited his premises the evening of the surge, that the electricity company would meet claims for repair or replacement.

The customer stated that he submitted a claim to his electricity company for the repair and/or replacement cost of the damaged appliances. He said the company had offered to meet in full his claim for the repair of the microwave oven ($281.75), the replacement of the sensor light ($132.50) and the replacement of the security system ($150). He said the company also offered $900 as the market value of the damaged computer. The customer was dissatisfied with the company's offer for the computer as it had cost him $1,630 to repair it.

The company advised that in assessing the computer it looked at replacement value based on its age. This was done on the basis of the company's trying to return the customer to the position he was in prior to the incident. To obtain a fair and reasonable price for the computer, the company looked for similar items in advertisements and applied the median value of $900.

As the dispute was not about the cause of the power surge, EIOV focussed its investigation on the basis for compensation to the customer. As part of the investigation, EIOV sought legal advice and independent advice from a loss adjuster. The loss adjuster examined the computer and said that it appeared to have been totally replaced. He thought it was unlikely that every component had been damaged by the surge. He also pointed out that the cost of giving the customer a new computer and monitor of the same model was $1,580, $50 less than the repair cost. He recommended a settlement figure of $1,350.90.

Legal advice received by EIOV was to the effect that as a general rule, a customer had a responsibility to mitigate against loss, that is to minimise any claim, and that an item would be considered beyond economic repair where the cost of repairs was greater than the pre-damage market value of the item or the cost of new for old replacement. In addition, the legal advice stated that it was not unusual for insurance policies to provide for replacement of an item with an equivalent new item, new for old cover, but that this cover would exist only if the electricity company had a formal surge protection policy or scheme that provided new for old cover.

The company advised EIOV that it did not have a formal written policy for surge protection and did not offer new for old cover. It also advised that the Surge Protection Scheme referred to on the reverse of the customer advice sheet that was given to the customer by its inspector had been cancelled.

The company increased its offer to the customer to $1,350.90 as recommended by the independent loss adjuster. The customer declined the offer stating that he wanted compensation for the full cost of the repairs. When the matter was unable to be resolved by negotiation, the parties sought the binding decision of the Ombudsman.

In making her decision, the Ombudsman considered relevant laws, regulations, codes, good industry practice, information provided by the customer and the company and the legal and independent advice obtained.

The Ombudsman considered that a fair and reasonable outcome was to pay the customer for the replacement cost of a 1.5-year-old computer, rather than the cost of a new computer. This would place the customer in the position he would have been in if the incident had not occurred.

The Ombudsman noted that damage to the computer may have been avoided or minimised by the installation of a surge protection device, and given the customer operated a business from home using his computer, it would have been prudent for him to install such protection equipment. However, she also noted that the customer was under the false impression that his power board protected against outside surge activity, and she was mindful of the fact that the customer's business was of a small part-time nature. She stated that the customer's failure to install surge protection equipment was therefore understandable.

A significant issue that the Ombudsman raised concerned the amount of information the company provided to its customers when they experienced supply damage due to voltage variations in their electricity supply. She was of the opinion that, if the company had provided the customer with a clear explanation of its compensation policy for these situations, the customer may not have incurred the additional repair costs and the dispute may have been avoided.

The Ombudsman directed the company to pay the customer $1,450.90 for his loss and for unsatisfactory customer service, and to review and amend the format of its "Claim Form - Damage" and its "Advice to Customer" sheet so that they provide clear explanation of the company's policy and process for customers claiming loss, as well as advice to customers about when they should obtain repair and/or replacement advice.