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Turning the Tide
part 2 what does the policy say
S U M M A R Y Why is the policy important?
The policy states the risks the insurance company has agreed to pay for. The insurance company cannot go outside the wording of the policy. It can only refuse to pay a claim for floodwater damage if this is specifically stated within the policy.
Will the policy pay for damage caused by rainwater?
Most policies will pay for damage caused by rainwater or stormwater.
However, a policy may, for example, state the insurance company does not have to pay:
unless the storm made an opening in the house, and the rainwater entered the house through that opening.
for damage to fences or retaining wall.
Will the insurance company pay for damage caused by floodwater?
Most insurance companies will not pay for damage caused by floodwater. The insurance company can only refuse to pay if this is stated in your insurance policy. |
Introduction
It will be stated specifically on your insurance policy document what risks the insurance company has agreed to pay for. Your insurance company will be able to provide you with a copy of the correct policy document. It is important to check that you have been provided with the right copy of your policy.
Note: Business contents insurance policies may provide cover for loss caused by floodwater. If you were working from home you may have a business insurance policy, and not a domestic building policy.
Will the policy pay for damage caused by rainwater?
A typical policy will say that the insurance company will pay for loss or damage caused by “rainwater” and that:
“Rainwater shall mean: rain falling naturally from the sky including rainwater run-off over the surface of the land and including rainwater overflowing from stormwater drains and channels.”
Some policies only cover damage in restricted circumstances and will not pay for all loss or damage caused by rainwater, but for example, will only pay for rainwater that “entered the house through an opening made by the storm”.
This definition is very narrow and restrictive – your insurance company can refuse to pay a claim for damage caused by the sheer volume of rainwater entering a house through doors and windows, and it will only pay where the storm was violent enough to damage the house.
To get a claim paid it is necessary to argue the insurance company should have specifically told you about the narrow definition in the policy, so that you could make an informed choice whether or not to buy such a policy.
Case Study
Where the insurance company could not rely on a narrow and unfair exclusion clause:
In AAMI v. Ellis (1990) 6 ANZIC 60-957, the insurance contract excluded liability for damage if the motor vehicle insured under the policy was modified without the consent of the insurance company. The consumer was unaware of this term in the contract and modified his motor vehicle by replacing the wheels with mag wheels. He had an accident, made a claim and it was denied by the insurance company.
The South Australian Supreme Court held that:
1. The insurance company was under a duty to act in good faith.
2. The owner of the motor vehicle was very young and inexperienced.
3. The duty of good faith required the insurance company to specifically inform the consumer of the terms of the policy about unauthorised modifications. It was insufficient to simply give the consumer a copy of the policy.
As the insurance company failed to tell the client about the term of the policy, the Court held that it had breached the duty of utmost good faith. It therefore could not rely on the contract, and had to pay the claim. |
It is uncertain how the Panel would respond to such an argument regarding how restrictive your policy was in relation to payment of damage by rainwater. If you could show the Panel you were not told of the narrow definition of what the insurance company would pay for, and the Panel accepted that the definition was unfair, then you would have your claim paid.
Does the insurance company have to pay for damage caused by floodwater?
Most insurance policies state the insurance company does not have to pay for damage caused by flood. A common definition of “flood” in insurance policies is:
“the inundation of normally dry land by water escaping or released from the normal confines of any natural watercourse or lake (whether or not altered or modified) or of any reservoir, channel, canal or dam.”
The most common dispute will be where the water came from. You can successfully argue that the insurance company should pay the claim where the source of origin of the water was from a source outside the definition used in the insurance policy.
Case Study
When water is not floodwater.
In Decision 97-3892, the Panel had to decide whether water that entered a house after flowing down gullies of a mountainside was “floodwater”. The insurance policy stated that “floodwater” was water escaping from a natural watercourse. The Panel found that as the gullies did not carry water except during heavy rain, they should not be regarded as a “watercourse”. |
Arguing about the source of the water
Where the insurance company refused your claim by saying the damage was caused by floodwater, you need to consider whether the water which caused the damage was “floodwater” within the definition in the policy. The insurance company (or their hydrologist) may assume that if the water was not obviously an overflow from stormwater drains then it must have been floodwater. As seen in the Case Study above, this is not always the case.
It is important to check the wording in your policy, as this will vary between different insurance companies. Some are changing their policies so that they say “floodwater” includes run-off from stormwater drains. This makes it even harder for consumers to claim.
Situations where it may not be obvious whether the water was “rainwater” or “floodwater” include:
- Where the insurance company has assumed that the watercourse is natural but it was in fact built by the council as a stormwater drain.
- Where the water escaped from a stream or creek which has had its boundaries significantly or substantially altered by human activity eg. to improve drainage. If so, then the watercourse is no longer natural.
It will be necessary to show that the original path of water was altered dramatically and is not a modification to a watercourse but the creation of a new artificial watercourse. Remember, as definitions of floodwater will vary from policy to policy, some policies may state that “floodwater” is water which has escaped from a natural or an artificial watercourse.
- In some areas, councils may have developed drainage or retention basins near possible flood sites. You may argue that water escaping from such a basin is not floodwater as it is not escaping from a “natural watercourse, lake, reservoir, canal or dam”.
Arguing that the insurance policy does not exclude all damage caused by floodwater
Sometimes the only cause of damage will be floodwater. In other cases, the floodwater will contribute to the damage. It is important to check the wording in the policy as it may only exclude damage where the floodwater is the only cause (or the main cause). If so, the insurance company will be required to pay where floodwater contributes to the loss.
Some policies may state that the insurance company does not have to pay for “loss or damage by flood”. If so, it can be argued that these words are narrow in effect and only exclude damage where the flood was the main cause.
Case Study
The insurance company had to pay the claim as the floodwater only contributed to the loss
In Decision 95 -1369 the floodwater did not enter the house. However, it led to some rainwater being redirected from its usual channel or path and so contributed to the loss. The policy excluded “loss or damage BY flood”. The Panel decided that this phrase was narrower in meaning than the words “loss or damage caused by flood”. The Panel decided that this only excluded damage from floodwater as the immediate cause of the loss rather than a contributing factor. Accordingly, the insurance company had to pay the claim. |
Turning the Tide
part 1 : how to use this guide
part 2 : what does the policy say?
part 3 : where the policy is confusing or you did not get a copy
part 4 : what caused the damage?
part 5 : getting organised
part 6 : what if the claim is rejcted?
part 7 : other issues
contacts |
