What You Need to Know About Water Damage Claims – Part 1

Water Damage claims are one of the largest sources of claims for strata insurance and they make up almost half of the claims lodged by Strata Insurance Solutions. In a report done by Strata Community Association titled A data-driven holistic understanding of strata insurance in Australia and New Zealand, they found that in the period of 2016-2020, water damage claims costs alone was $362 million.

The weather in Australia is unpredictable, as seen by the most storm events impacting Queensland and New South Wales in early 2022. Strata insurers saw an unprecedented number of water damage claims from building leaks. As water damage claims are by far the largest source of claims, insurers are starting to pay closer attention when insuring properties.

Firstly, there are two factors that insurers look at – the number of water damage claims a property has; and policy exclusions.

There may be several reasons why a property has a history of water damage claims. It may be because water apparatus such as pipes and membrane may be starting to fail, or they weren’t initially installed correctly. The more claims a property lodges under their insurance, the higher the chance of an increase in insurance premium, and the less favourable an insurer can become when a policy is due for renewal.

When it comes to policy exclusions, it really comes down to the policy you have. Exclusions can vary to include damage from faulty workmanship, to building defects, to wear and tear, and more.

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Understanding Water Damage Claims

To understand water damage claims, we have broken it down into a few key components.

Damage

Damage. To start, we look for the source of the leak. This can come from pipes, waterproofing membranes, roofs, gutters or downpipes, or tanks. The next thing to consider is the exploratory cost. Depending on where the damage occurred, contractors may need to pull back gyprock or tiles to find the leak. The last thing is the consequential damage – what has been damaged due to the original leak.

Cover

The second component is Cover. In this case, it’s very important to assess your policy, the policy wording and its exclusions. Generally, insurers cover the cost to repair consequential damage but will exclude repair costs that relate to exploratory costs and repairing the leak. This is because it is considered the owners’ or body corporate’s responsibility to maintain their property, and this includes general maintenance or wear and tear.

An insurer can have exclusions covering lack of maintenance, wear and tear, building defects, rust, oxidation, corrosion, developing flaws, gradual deterioration, and more. Generally, repairing the leak and its associated exploratory costs are only covered if the leak is caused from “sudden and accidental damage” such as sudden pipe blockage or storm damage. However, the consequential damage (to insurable property) should be covered as water damage.

We have had some examples of claims that were declined by insurers as they were deemed as a maintenance issue, which is excluded under strata insurance policies.

Keeping Proof

We highly recommend keeping record and getting your repairer to itemize their quote or invoice, to allow for a smoother process when lodging a claim. You can get the repairer to provide the following information:

• The cause of the leak
• The cost of finding the leak
• The cost of fixing the leak
• The cost of fixing resultant water damage

Also make sure that you have proof of consequential damage, even if it is minor. If you have not kept any proof, there is a possibility that the insurer may decline the claim.

If you are in a situation where you need to engage urgent repairs so as to minimize further damage to your property, you can decide to self-authorize repairs and receive an invoice instead of a quote – this option is only suitable where the repairs are estimated to be less than $10,000. The act of repairing damage will not affect whether the insurer accepts a claim. In saying that, if the insurer deems the damage not covered during their assessment, then the owner(s) or the body corporate (depending on where the damage is) will be responsible for paying the invoice.

All policies do authorize the insured to take all reasonable actions to prevent any further damage or loss and ensure that their property is safe. As the insured, you are required to always abide by these conditions, including the period your insurer is assessing and processing your claim. If it is found that there are any unreasonable delays by you that has resulted in further damage to the property, your insurer can decide to reduce liability.

Now that you have gained an understanding to water damage claims, learn how to prevent them.

To read more:

• What You Need to Know About Water Damage Claims – Part 2

• How to make a strata insurance claim?