QUESTION
We have a client who heard running water coming from under the house and immediately called a plumber to investigate. In order to get to the impacted area, the plumber and subsequently a builder had to remove flooring to access the leaking pipe. It was done so quickly that the damage was fully contained, and there was no resultant water damage to the property. The client lodged a claim for the damaged flooring in order to get to the pipe to repair it. The claim has been declined by insurer as there was no resultant water damage, and part
of the old original piping where it joined new plumbing was rusty (1922 house).
The LA has quoted the following in their report:
“Wear and tear.
We won’t cover loss caused by wear and tear. However, if there’s resulting loss to other parts of the home caused by the excluded loss, we’ll cover it (unless it’s excluded under another part of this policy).
The damage to the floor could be considered as resulting loss to other parts of the home; however, we also note the following section of the policy wording to be considered;
"Damage during cleaning, repair, renovation, or restoration.
We won’t cover any loss caused by any cleaning process, renovation, repair, or restoration – but this only excludes:
• the part of the home that has directly undergone that process.
• any other part of the home in any way physically connected to the part of the home that has undergone that process.
This exclusion doesn’t limit cover under the ‘New building work’ benefit. However, if there’s resulting loss to other parts of the home caused by any cleaning process, renovation, repair, or restoration, we’ll cover it (unless it’s excluded under another part of this policy).
The resultant damage to the floorboards was not the result of a sudden, accidental, and unforeseen event (as this was damaged by the builders to allow access to the leaking pipe)."
However, they have declined the claim on the basis of:
"Based on all info provided, we don’t believe policy can respond here, pipe damage is not sudden and accidental, and without proof the flooring was damaged as a result of the water pipe, we couldn’t consider coverage for this either."
Thoughts?
EXPERT ANSWER: Emma Gabor - Gabor Law
Based on the facts presented, it looks like the insurer is correct. The damage to the pipe is excluded because the loss is not sudden and accidental. The flooring was removed in order to access the pipe and repair it. At first glance, it seems a normal instance of house maintenance. If the only cost had been the cost of the plumber, the homeowner would not have thought of claiming it from the insurer. It's just that here, the repair cost was higher due to the location of the pipe.
The reason this case might feel wrong is that, by incurring the cost to remove the flooring and fix the leak, the homeowner prevented a loss which would have been covered by the insurer.
So, potentially, the insured incurred "mitigation costs". The case law around indemnity for mitigation costs is complicated. Some cases argued that an insured is under a duty to take reasonable care of its property at its own cost. Other cases discussed the potential for cover to be granted in situations of "imminent peril". Bridgeman v Allied Mutual Insurance Ltd 1999 WL 33249580. Some cases, such as Re Mining Technologies Australia Pty, granted cover. In that case, the insured spent costs in recovering mining machinery trapped by the collapse of a mine shaft. The court considered the proposition that a sum paid to avert a peril might be recovered as upon a loss by that peril, and concluded that if the peril insured against was sufficiently imminent or had eventuated it would be unjust, in the absence of any term to the contrary in the contract of insurance, if an assured spent money to avert or reduce the risk of the insurer becoming liable and there was no correlative obligation on the part of the insurer to pay for that expenditure. In that case, the insured spent a significant sum of money to recover its equipment. If the insured had not spent the money, it could have claimed a larger sum from the insurer. In that case, they were entitled to recover the sum spent.
