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Turning the Tide
part 4 what caused the damage?
S U M M A R Y How is the cause of the loss decided?
The cause of the loss or damage depends on the individual circumstances of each case. If the cause was flood damage, and this is excluded under your policy, then the insurance company can refuse the claim.
What if the loss is caused by both rainwater and floodwater?
There can be more than one cause of the damage, and if it was caused by combined rainwater and floodwater entering the house, then the insurance company can still refuse to pay the claim.
Do hydrologists get it right?
Insurance companies usually obtain hydrologists reports to confirm whether the damage was caused by rainwater or floodwater. These reports recreate the events and suggest the maximum level the water would have reached if it was only rainwater. These reports are not conclusive and can be based on false assumptions and can be inconsistent with eyewitness events. If so, they may be challenged as incorrect. |
How is the cause of the damage decided?
Where your policy excludes liability for flood damage, it is necessary to establish the cause of any loss as there may not simply be one clear cause of the loss. Where some thing is a direct or immediate cause of the loss it is referred to as a “Proximate Cause”.
Proximate Cause means the insurance company can deny a claim when:
- the policy excludes damage caused by flood
- floodwater is found to be a direct or immediate cause (even if rainwater is also an immediate cause).
The principle of Proximate Cause is applied in the following way:
1. The Proximate Cause is the “dominant, effective, immediate or direct cause”.
2. The fact one cause is first or last in time is not decisive in determining the Proximate Cause.
3. There may be more than one Proximate Cause.
4. A commonsense approach is taken to the question of finding the Proximate Cause.
These principles are applied to water damage as follows:
1. Where rainwater came before the floodwater then the insurance company must pay for the damage.
2. Where the rainwater came after the floodwater then the claim may be refused by the insurance company.
However, if some of the damage to the house can be specifically identified as having been caused by that rainwater (eg. damage to the roof, or rainwater leaking into the walls or other parts of the house), then the insurance company must pay for that damage.
Case Study
Where the rainwater came in first
In Decision 94-997 the facts were that the rainwater entered the house first and was followed by a surge of floodwater. The Panel decided that:
- The insurance company had to pay for the damage caused by the rainwater
- The insurance company could refuse to pay for any damage caused solely by the increase in the water level in the house after the initial rainwater by floodwater
- If it is not known which damage was caused by the floodwater or rainwater then the insurance company should pay for the whole amount of the loss. This is important as it may be difficult to determine which part of the damage was done by floodwater after repairs have been made.
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3. Where the loss is caused by rainwater and floodwater that have mingled together before entering the house then generally the insurance company can refuse to pay the claim.
The insurance company can refuse to pay the claim where rainwater and floodwater are both found to be Proximate Causes. The Courts have held that where a loss is the result of two Proximate Causes, one of which is insured against (rainwater) and the second is excluded (floodwater), then the insurance company is entitled to deny liability. If both contribute to or are direct causes of the loss they will be considered “Proximate Causes”. For example if the mixed waters are 55% rainwater and 45% floodwater, the insurance company will be entitled to deny the claim.
However, each case will depend on its facts. It will be possible to get the claim paid were rainwater was the Proximate Cause and the effect of the floodwater was minimal or insignificant.
Case Study
Where floodwater was not a Proximate Cause
In Decision 95-1369 damage was caused by water which was a combination of both rainwater and floodwater. The Panel reviewed the facts and found:
- the floodwater formed a small percentage of the water which entered the house
- the rainwater was sufficient to do the damage without the floodwater
- the volume of the floodwater was too low to enter the house and would not have caused any damage
The Panel held that the floodwater was not a Proximate Cause of the damage to the house and therefore the insurance company should pay the claim. |
Causation and hydrologist’s report
Insurance companies often have reports from experts, such as hydrologists, to try and determine the origin of the water which caused the damage. These reports try to reconstruct ways in which water levels rose and the source and direction of water flow during the course of the storm. These reports are not definitive as they may rely on incorrect assumptions or information. Insurance companies may provide you with copies of these reports and you should read them carefully.
You may challenge the report if it is contradicted by eyewitness accounts and if the report has incorrect assumptions about when or how the water reach particular areas and the time and height that water levels peaked. However, even if these assumptions are shown to be incorrect, you must still show the damage was caused by the rainwater.
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
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