The best time for clients to understand how insurance works is before they might need to make a claim, says Karen Stevens, Insurance and Financial Services Ombudsman.
“Advisers have a really important role in educating their clients about what an insurance policy does and doesn’t cover."
She said gradual damage was a good example of where more information would help clients.
“We hear from many people who don’t understand that insurance is there to cover you for damage which happens suddenly and accidentally, and not for damage that happens gradually.
“12% of all general insurance complaints to the IFSO Scheme relate to gradual damage,” Stevens said.
“People make claims for damage that has developed slowly, or gradually, and they are very unhappy when they learn it’s not covered.
“Water damage is a recurring issue, especially when the damage is discovered suddenly, but has been happening over time. It might be the much loved and watered plant which has caused the carpet below to rot, or the rotten laundry floor which suddenly gives way, having been saturated by a leaking washing machine for months."
She said clients needed to understand it was not the discovery but the cause of the damage that had to be sudden.
"Your clients need to know that if they do find a leak, they should take immediate steps to prevent further damage and notify their insurer. If they don’t take immediate action, they won’t be covered.”
She said one homeowner discovered her driveway was sinking in the middle. But after she made a claim she found it was the result of water leaking from a basement that had flooded months earlier. Her claim was declined.
Top tips for advisers to share with your clients
Gradual damage is a common exclusion in insurance policies.
2. The cause of the damage (not the discovery) must be sudden.
3. The insured must show that the damage was sudden to get cover.
4. The onus is on the insurer to prove an exclusion relied on if cover would otherwise be available (e.g. that the cause of the damage was gradual deterioration, mould, mildew or rust).
5. Some policies have limited cover for gradual damage, which applies in certain circumstances, set out in the policy (e.g. water leaking from an internal waste disposal pipe with limited cover up to a set sum).
2018 case study
After the insured's property manager inspected her rental property, she said the floor in the lounge in front of the ranch slider was rotting, and there was a hole due to water ingress through the ranch slider from storms.
The insurer’s loss adjuster inspected the damage to the carpet, particle board flooring and a timber door jamb and concluded it was the result of an on-going leak through the ranch slider. The damage was, therefore, gradual in nature. The loss adjuster appointed a builder to inspect the damage and the builder reported that the damage had been caused by long term water leaks, over many months.
The insurer said the cleaning and drying costs of the carpet that would have applied for sudden damage would be covered, but it was not economical to proceed with the claim, as the costs were the same amount as the excess.
The client complained. She said the water damage was not visible as it looked like the carpet stain had happened in one or two events, and the tenant hadn’t told her about the stained carpet and damp smell until it was too late.
The insured said the damage was caused by continual rain “hammering” at the ranch slider, and, as soon as she saw a stain on the carpet, she immediately contacted a builder to fix the problem. She said it was “hidden and could not be physically seen unless you pulled the carpet up”.
Policy wording:
The policy covered “accidental physical loss or physical damage”, where accidental meant a “sudden and unforeseen event, not intended or expected by” the insured. Cover was excluded for “mould, mildew, rot, fungi, or gradual deterioration”, and “any other gradually operating cause”.
Evidence
The loss adjuster’s report: the damage was “a result of an on-going leak through the ranch slider door and is therefore gradual in nature.”
The builder’s report: the “flooring had suffered from long term water leaks … to completely fall away would have taken many months of exposure to the leaks.”
IFSO Scheme investigation
The IFSO Scheme case manager spoke to the property manager and the builder the property owner had engaged to repair the damage. The property manager said she found the carpet was damp and, when she pulled it up from the edge, the carpet was soggy and disintegrating, the particle board flooring was flaking and a hole had developed in the floor from the water.
The case manager also reviewed the photographs taken by the loss adjuster, a few days after the claim was made. The photographs showed the stain on the carpet, the hole in the floor, the watermark, and flaking and discolouring of the floor. The extent of the damage indicated that it could only have happened over a period of time; none of the aspects of damage identified in the photos usually occurred in a one-off drenching by water.
Although the damage to the carpet and flooring was partially hidden, and the insurer had become aware of it suddenly, the cause of the damage was gradual. It had not occurred immediately or all at once.
Complaint not upheld
