This article about water damage insurance claims has been supplied by Tyrone Shandiman, Strata Insurance Solutions.
Question: After a water damage insurance claim, do I have a claim on the owners corporation for the excess on my home contents policy given the fact that I sustained the loss (property damage) through common property failure?
My apartment recently suffered internal damage as a consequence of a failure in a common property pipe. The Owners Corporation insurance policy responded to the claim and the damage to my private property was repaired.
At the initial property inspection by the insurer’s loss assessor, I was advised that the Owners Corporation policy does not cover the floor coverings in my apartment which were damaged as a direct result of the common property asset failure.
I was directed to my homeowner’s policy to make a claim. My home contents policy responded although I had to cover an excess payment of $500 under the policy.
Do I have a claim on the owners corporation for the excess on my home contents policy given the fact that I sustained the loss (property damage) through common property failure?
Answer: When lodging the claim, the owner should explain to their contents insurer why they believe the owners corporation are at fault.
This is a good question that we get asked all the time.
If the owner believes the owners corporation are at fault for the damage to their property, the recommended course of action for the owner is firstly to contact their contents insurer to lodge a claim. When lodging the claim, the owner should explain to their contents insurer why they believe the owners corporation are at fault.
The contents insurer should then lodge a claim and conduct the repairs on behalf of the owner and charge the owner an excess prior to repairs starting.
At the end of the claim, the contents insurer will determine if the owners corporation are liable. If they believe there are grounds to suggest the owners corporation are liable, the contents insurer may then pursue recovery against the owners corporation who can refer the claim to the strata insurer under the liability section of the policy.
If the contents insurer is successful in recovering costs in the absolute majority of cases contents insurers will refund the excess (the owner should check with their insurer that they will refund the excess upon recovery of the claims costs). If the contents insurer does not believe the owners corporation is liable then they will not pursue recovery and the owner will be liable for their contents excess.
Alternatively, the lot owner can seek to recover from the owners corporation directly by sending a letter of demand which outlines the circumstances around the loss, why they believe the owners corporation is liable and the amount they are seeking for reimbursement.
It should be noted that insurers are more experienced in the recovery process and therefore the owner may be better served having their contents insurer determine if the owners corporation are liable and what the recovery process should be.
With regard to the question of who is liable for the damage, this is a legal question that is specific to the circumstances of the claim and best answered by legal professionals.
It should be noted that a leak from a pipe on owners corporation property does not necessarily mean they are automatically liable. Common defences strata insurers (on behalf of the owners corporation) have is in relation to the question of “negligence” can include “the owners corporation had no prior knowledge of the leaks identified prior to being notified by the lot owner and any leak would be from an unforeseen cause with no contribution from the owners corporation.
There is no indication the owners corporation could have done anything differently in order to have better mitigated loss of the lot owner, therefore they were not negligent in their actions and therefore would not be found negligent under common law”. If the owners corporation insurer successfully defends the recovery action, as the contents insurer has not recovered the claim the owner is not refunded the excess.
Accidents happen and negligence will differ from circumstance to circumstance – owning a property is not a risk-free investment and should the lot owner ultimately incur the cost of the excess, it is part of the cost of owning a property.
This post appears in Strata News #259
Preventing Water Damage Claims / Avoiding Water Damage Excesses
Water Damage claims are by far the largest source of claims for strata insurance making up 45% of all claims lodged to Strata Insurance Solutions.
Insurers are now starting to pay close attention to properties that have water damage claims, particularly properties that have a series of water damage claims. This is because it can indicate pipes, membranes, roofs and other water apparatus are starting to fail due to either coming to the end of their useful life or they were not installed correctly when the property was built.
Insurers are applying premium increases and/or higher water damage excesses to buildings with a history of water damage claims. In some instances, only one claim can mean unfavourable treatment from an insurer when the policy renews.
On the claims front, water damage claims are our most disputed source of claims as insurers have a number of exclusions which can mean they void claims for water damage. These exclusions include damage from wear and tear, faulty workmanship, building defect, gradual deterioration, building or earth movement, rust, corrosion or tree/plant roots.
The best way to avoid a declined claim or high premiums/water damage excesses is to prevent the claims from happening in the first place. We discuss our top five causes of water damage claims and measures that can be taken to avoid water damage claims, high water damage excesses and repercussions that follow.
|Failed waterproofing membranes in shower recesses|
Shower recesses are typically built on a suspended timber frame with a waterproofing membrane applied to prevent water from damaging the sub-floor below. A properly applied membrane has a lifespan starting from 25 years until such a time the shower membrane fails and causes damage to the sub-floor. A poorly applied membrane can start to fail within years of the shower recess being built.
To minimise the chance of damage from a failed waterproofing membrane we recommend speaking to a plumber about the following measures:
Burst pipes can cause major damage to properties particularly if the lot owner is not home to tend to the burst pipe. In a multi-storey building a burst pipe can cause extensive damage to multiple floors. We recommend speaking to a plumber about installing the following:
|Flexible Braided Hoses|
Flexible Braided Hoses are becoming a growing issue for many properties and can mean an inundation of 1,500L of water per hour to a property. Flexi-hoses should last for 10 years but can fail before their warranty due to incorrect installation. We recommend the following:
Leaking roofs in most cases will cause damage to the internal ceilings. In more severe cases ceilings can collapse and water can damage floors, skirting and cabinetry. The most common cause of roof leaks are from broken and slipped tiles, flashings not being installed properly, blocked gutters and iron roof screws/seals coming loose or failing. A maintenance plan should be implemented for the following:
Blocked toilets are also common source of water damage claims. Aside from water damage to property, sewerage also can cause a safety hazard to property occupiers. If you live in a multi-storey property we recommend you provide a memo or remind unit occupiers not to flush wipes, sanitary products or other foreign objects down the toilet.
Water Damage Insurance claims in a hardening Strata Insurance market
We previously provided an outlook that strata insurance premiums were on the rise. Since this advice, we have seen actual increases applied to our client’s policies in accordance with our guidance.
The major reason for the increase has been that in 2015 and 2016 the market saw premiums reduce significantly due to increased competition with the introduction of a number of new underwriting agencies entering the market and insurers fighting to keep market share. Subsequently, insurers started to see loss ratios (premium collected vs claims paid) come through their portfolio that were unsustainable as the premium collected was insufficient.
Since we provided our update, we have now started to see insurers paying specific attention to buildings with a history of water damage claims. Over the past 12 months, water damage claims made up 45% of all claims received by our clients, which suggests this is likely the highest source of claims for strata insurers.
One insurer has started to take what we believe is punitive actions against clients with a high level of water damage claims. Recently we had a client who had been with the insurer for four years and in the past twelve months had two water damage claims of approximately $2,000 each. The insurer applied a $5,000 water damage excess to the policy and loaded the premium by 20%. We believe the application of the excess was unreasonable, not only because the claims in the past 12 months were relatively minor, but also because many lot owners will likely not have a spare $5,000 available if there is a water damage claim.
When we disputed the excess increase the insurer advised us that they are now applying a $5,000 water damage excess to all buildings with a sum insured over $10,000,000 where there have been 2 or more water damage claims in the last two years irrespective of the size of the claims. Following this, we are reviewing the cost/benefit of lodging each water damage claim when they are submitted to us and where we believe it will be detrimental to the next renewal we will advise accordingly.
Why are water damage claims unattractive to insurers?
A series of water damage claims can indicate pipes, membranes, roofs & other water apparatus are starting to fail due to either coming to the end of their use life or they were not installed correctly when the property was built. Our experience is that this can be a key indicator that there are more water damage claims to come.
The insurers’ role is to ensure the terms and conditions including excess and premium collected across their portfolio returns a profit to their shareholders. Insurers “underwrite” a policy when it is incepted and at each renewal and as part of the underwriting process a claims history assessment is undertaken. Subsequently, an insurer will impose higher premiums and excesses, exclude certain covers or decline to offer a policy entirely if they do not believe their standard terms and premiums will achieve a profitable outcome.
Common Water Damage Insurance Claims
The most common cause of water damage claims we see include:
- Failing membranes in shower recesses.
- Leaks in a roof due to cracked or slipping roof tiles.
- Pipes bursting.
- Foreign objects blocking pipes.
What can owners do to minimise claims?
Many water damage insurance claims we have experienced could have been minimised if the owners took the following actions:
- If you have a tiled shower recess, there will likely be a waterproofing membrane that sits underneath the tiles which stops water from damaging the sub-floor. A properly installed membrane should last up to 25 years. After this point owners should consider either applying a spray on membrane over the tiles which can cost approximately $1,000 or renovating the bathroom which includes removing the tiles and reapplying the waterproofing membrane. This advice also applies to buildings less than 25 years old that are having water damage insurance claims from failing membranes, as it may suggest that the membranes were not installed correctly for the building.
- If you have a tiled roof, you should have a roofing contractor inspect your roof and replace any cracked tiles or re-align slipped tiles on a regular basis.
- If your property has a history of burst pipes, consider engaging a plumber to provide advice on how to minimise such issues.
- If you live in a multi-storey property, provide a memo or remind owners and tenants not to flush wipes, sanitary products or other foreign objects down the toilet.
- Get in early. Water damage insurance claims will exacerbate if left unattended. The sooner the damage is fixed the lower the claim expense will be.
A strata insurance policy is designed to cover unforeseen events and insurers have a preference to insure properties that are maintained with a proactive approach over ones that aren’t. The onus to maintain a property falls in the hands of the owner and whilst an insurance policy is available to cover the unexpected as the saying goes “An ounce of prevention is worth a pound of cure” particularly in this hardening market.
This post appears in Strata News #174.
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
- NSW: Q&A Statutory Duty to Repair and Maintain Common Property
- NSW: Q&A Does unit owners insurance cover damage from leaking pipe?
Have a question about water damage insurance claims and who pays the excess or something to add to the article? Leave a comment below.