In the aftermath of the recent rains and floods in Queensland and New South Wales insurers are likely to have been inundated (pun intended) with claims for water damage to insured properties said to have resulted from rain and floods.
As was seen in the aftermath of the 2011 Queensland floods and other floods at the same time and since, there has been an increasing amount of pressure on insurance claims departments to correctly assess water damage claims and make defensible determinations based on policy terms. At the same time, insurers have had to grapple with sometimes unrealistic community expectations on the claims that are able to be accepted and those that cannot, in other words events that are insured and those that are not.
This office has recently been involved in a case where it was able to successfully defend a declination of a water damage claim by a large national insurer. This included having a subsequent application for leave to appeal dismissed by the NSW Court of Appeal.
In the context of more recent inundation, the case is a good reminder of the issues that arise when making determination on water damage claims and how those issues play out when challenged in Court.
The matter involved an insured property located in regional New South Wales. As with the case with many rural properties, the house located on the insured property had been constructed in the 1920s and appeared not to have been maintained for some time. At the end of a sustained period of rain in 2011 the insured lodged a claim for water damage to the insured property allegedly as a result of "storm".
It is important to note at this juncture that the insurance policy was a defined events covering "storm" damage. Storm was a defined term in the policy which required there to be an atmospheric disturbance that could be accompanied by rain, hail or wind.
Further, the policy contained an exclusion clause in relation to damage caused by a lack of maintenance.
The insurer declined the claim on the basis the damage was not caused by an insured event (storm) and further that the water damage was caused by a failure to maintain the roof of the property.
Inevitably, the insured took a different view by asserting the water damage was caused by rain and therefore should be covered under the policy. Consequently, the insured commenced proceedings in the District Court seeking damages (being the amount of the repairing the water damage).
The insurer filed a defence on the basis insured had not proven the water damage had been caused by a "storm" as defined in the policy and on the basis of the Wayne Tank principle in respect to the failure to maintain (an excluded event) causing or contributing to the water damage.
The legal proceedings were ultimately the subject of a two day hearing before a District Court Judge. To make things more challenging, the presiding Judge decided the hearing would proceed by way of "oral evidence" rather than the parties prepare and exchanging written evidence beforehand, the latter being the more common course in modern litigation. As a consequence, the insurer (and the insured) had no knowledge of the substance of the other side's case prior to the hearing.
As the hearing unfolded it became clear the insured had failed to grapple with the defined event nature of the policy and instead took the position that "rain" was synonymous with "storm". In this regard, meteorological evidence was led about heavy "rain" events that had occurred over several months but there was no evidence of "storms". Although the insured gave evidence, she could not directly testify as to how the damage occurred as she did not live in the insured property at the time.
No real expert evidence was led as to how the damage occurred although a quote had been obtained from a builder making a bare reference to "storm" damage.
At the completion of the insured's case, the insurer elected to take a forensic risk and not put on any evidence. Instead, the insurer made submissions that the insured had failed to prove the water damage was "storm" damage and therefore covered under the policy.'In making the forensic decision not to put on any evidence, the insurer effectively curtailed its ability to run a case based on the Wayne Tank principle (i.e. the damage to the insured property had been caused at least in part by an excluded event, being a lack of maintenance and therefore not covered at all irrespective if it was also caused by a "storm").
Judgment in Favour of Insurer
- After considering the dispute over a number of weeks, the District Court Judge gave judgment in favour of the insurer and dismissed the damages claim.
- The principle reasons for the judgment were as follows:
- The onus was on the insured to prove the water damage was caused by a defined event, in this case a storm;
- The definition of storm under the policy required there to be more than rain, it required there to be proof of an atmospheric disturbance;
- The insured have failed to prove an atmospheric disturbance and had simply proven "rain";
- Further, the insured had failed to prove the damage to the insured property had been caused by a "storm" (or indeed "rain"). In this regard, the absence of expert evidence meant the Court could not make any finding on "causation".
As a consequence of being dissatisfied with the dismissal of her claim, the insured lodge an application for leave to appeal with the NSW Court of Appeal.
Again, the insurer defended the application on the basis the original decision was correct in its principle reasons.
The application for leave to appeal was eventually heard and dismissed by the NSW Court of Appeal as having little or no prospects of succeeding on a full appeal.
In dismissing the application for leave to appeal, the NSW Court of Appeal confirmed the following:
- The onus is on the insured to prove damage to an insured property is caused by a defined event covered under the policy;
- The onus of proof includes the requirement on an insured to obtain proper expert evidence where the cause of the damage to insured property is unclear and would not be within the knowledge of an ordinary person.
While the ultimate decision of the NSW Court of Appeal would appear to be quite simple, it is a timely reminder of the fundamentals of claim determinations irrespective of the size and community expectations surrounding particular types of claims, namely:
- The onus is ultimately on the insured to prove a particular claim falls within the terms of the policy;
- A claim determination should be based on a clear understanding of the evidence before the insurer and a correct application of the policy terms.