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Determination
Case number | 12-00-972442 |
Financial firm | Hollard Insurance Partners Limited |
Case number: 12-00-972442 27 June 2024
The complainant holds a home insurance policy with the financial firm (the insurer). He lodged a claim for damage caused by building movement. He says the movement was caused by a leaking pipe.
The insurer agrees there was a leaking pipe. However, it says the leak did not cause any damage. It says the damage was caused by long-term ground movement, which the policy does not cover.
Yes. The house had some damage before the leak. However, it also has damage that appeared suddenly at about the same time as the leak. The evidence shows, on the balance of probabilities, that this damage was caused by the leak.
The policy covers the identified damage to the kitchen, living room, hallway, staircase, and the east side of the dining room. It also covers any damage caused by the saturation of the stumps.
The policy does not cover the identified damage to the west side of the dining room, bedrooms, or external brickwork. The evidence does not show this damage was caused by the leak.
The complainant’s house has a history of movement-related damage. However, the evidence indicates it was also damaged by a sudden and unexpected leak. The policy covers this kind of damage.
This determination is in favour of the complainant.
The insurer must accept the claim and settle it in accordance with the policy terms. Further details of how the insurer must settle the claim are set out in section 2.2 of this determination.
Yes. The house had some damage before the leak. However, it also has damage that appeared suddenly at about the same time as the leak. The evidence shows, on the balance of probabilities, that this damage was caused by the leak.
The complainant says there is a ‘load bearing wall’ running approximately north-south across the middle of his house. This is the border between the original house (circa 1930s) and the extension (circa 1986). The rooms shared by this border include the staircase, dining room, kitchen, and lounge room.
The complainant says the load bearing wall moved because of a burst water main under the kitchen, near the north end of the extension border. He says this movement caused damage to the rooms surrounding the extension border.
The complainant says:
The complainant appointed a plumber, who visited the home on 9 July 2022. The plumber recorded a video of a leaking pipe. The video shows water leaving the pipe in two locations, at a rate between a slow pour and a fast drip. The plumber repaired the leak. The plumber’s invoice says:
Emergency repair works. (09/07/22)
Identify/repair leak 3/4 main water line under building.
On 9 July 2022, the complainant lodged a claim with the insurer. According to the insurer’s records, he reported the damage as follows:
The customer noticed that there were cracks appearing in the walls and in the ceilings and that plaster was cracking as well throughout the house. The customer advised kitchen, dining room and lounge are sort of sharing the same wall and the cracks are visible throughout. The customer has gone underneath the house to check and noticed a copper pipe that was noticeably visible to be leaking and that there was a 5m x 5m radius of an accumulation of water.
The insurer appointed a loss adjuster, who inspected the home on 5 September 2022. The loss adjuster said the house was ‘approximately 81-90 years old’, and ‘maintained in good condition’. The loss adjuster said they could not determine the cause of the cracks and recommended appointing an engineer.
The loss adjuster appointed a plumber, who inspected the home on 7 September 2022. The plumber confirmed the leak had been fixed, and there were no more leaks. The plumber the stumps around the leak were ‘still damp’, and the ground was ‘very damp’. The plumber said:
Water has been leaking from the pipe for quite a while and the stumps under the kitchen area show strong evidence of water having soaked up them and the ground is damp. This may suggest the stumps have sunk slightly. There is also cracking to the brick work on the external [north] wall of the kitchen indicating the foundations have also moved slightly. This may well have caused the movement that has caused the cracking to the walls internally.
The insurer appointed an engineer, who inspected the home on 10 October 2022. The engineer said:
The engineer concluded the cracking was not caused by the leak, but by the following factors:
The complainant says he is claiming for damage across the middle of the house, around the border between the original house and the extension. AFCA asked whether there were cracks in other parts of the house. The complainant said he was ‘not concerned with any minor cracking at any other location throughout the dwelling’.
The loss adjuster only recorded damage to rooms on the extension border. The loss adjuster took photographs of the damage, and captioned some: ‘unrelated to event’. These photographs show cracks in cornices on the west side of the dining room (the extension border is on the east side of the dining room). The loss adjuster did not say why they thought these cracks were not caused by the ‘event’ that may have caused the other cracks. However, one of the cracks appears to have been patched.
The engineer said there was ‘cracking damage throughout the property (particularly the kitchen, living room and around the staircase)’. All of these rooms are on the extension border.
The engineer said there were cracks between cornices and ceilings in two bedrooms on the west side of the house, far from the extension border and the leak. They did not describe the cracks or include photographs of them in their report. I infer this is because these cracks were less severe than the cracks around the kitchen and staircase (which they did photograph).
The engineer said there were cracks in the external brickwork on the south side, some of which had been patched. The engineer included photographs of these cracks in their report.
The evidence indicates minor cracking has occurred throughout the house, but the most significant damage is concentrated around the extension border.
The complainant says:
The complainant says this indicates the damage was caused by a sudden leak, not by ordinary long-term ground movement.
The experts did not say the cracks looked old or worn. There is no evidence they were present before the leak.
The engineer said the house had evidence of patch repairs, which (along with the underpinning) indicated a history of movement-related damage. The engineer photographed patch repairs to external brickwork. The engineer says they photographed patch repairs to the ceiling above the staircase, but the repairs are not visible in the photograph. The engineer said there were patch repairs to the kitchen wall plaster but did not photograph them.
The expert reports indicate the house has a history of movement-related damage, some of which has been patched over. This is consistent with the complainant’s statement that the house was underpinned in 2016, and replastered and repainted in 2019. However, the reports do not establish the damage around the extension border is part of an ongoing pattern of movement-related damage.
The experts’ photographs show large and obvious cracks in the rooms around the extension border, and noticeable gaps between some building elements in these rooms. The evidence indicates this damage appeared suddenly at about the same time as the leak.
The engineer said the amount of water that leaked from the pipe was ‘minimal’. This was because the complainant’s water bill showed no significant spike in water usage between May 2022 and August 2022. However, the bill said the reading for August 2022 was an estimated reading.
The engineer said the ground around the leak was dry. However, this was about three months after the leak was fixed. The insurer’s plumber said the ground and stumps were damp about two months after the leak was fixed. The engineer did not comment on this.
The engineer did not comment on the following information, which indicates a significant amount of water leaked from the pipe:
For the above reasons, despite the estimated water reading, I am satisfied a significant amount of water leaked from the pipe. This was enough to saturate the surrounding soil and stumps.
The engineer carried out a floor level survey. The complainant says the survey should be ignored, because there are no measurements of the ‘as-built’ floor levels to compare it to. However, the complainant said the floors were re-levelled in 2017. Therefore, any variation in floor levels is likely to be due to movement since 2017.
The floor level survey showed the house had higher floor levels in the northwest and southeast corners. The survey did not show any no pattern of movement around the leak (which was approximately under the middle of the north side of the house).
The engineer said a leak would cause soil to expand, which would cause upward building movement. However, the insurer’s plumber said the stumps may have sunk into the damp soil, which would cause downward building movement.
The floor level survey was carried out about three months after the leak was fixed, when the soil was dry. If the leak caused soil to expend, fixing the leak may have caused the soil to dry out and shrink. This may have left cracks in the building while the floor levels returned to normal.
The floor level survey does not indicate the leak caused any building movement. However, it does not rule out the possibility.
The engineer identified several factors that could have contributed to building movement and cracking. However, there is insufficient evidence to link any of these factors to the claimed damage.
The factors cited by the engineer are all long-term factors that would cause cracking to develop gradually. The evidence indicates the damage around the extension boundary appeared suddenly.
The floor level survey showed floor levels were highest in the northwest and southeast corners. None of the factors identified by the engineer explain why upward movement would occur specifically in those areas. Furthermore, there was no concentration of damage around those areas (so if ground movement occurred in those areas, it may not have caused any damage).
The engineer said a tree on the west side of the house contributed to the damage by drying out soil. However, this would cause downward movement. There was no evidence of downward movement around the tree. The tree was near the northwest corner, where the floor level was highest.
It is possible that the original house and the extension move differently because of some difference in construction, and this is part of the reason why movement-related damage has appeared around the border between the two. However, there is no evidence of this in any of the expert reports. The engineer noted the east side of the house was an extension, built about 50 years after the west side, but did not cite this as a potential cause of differential movement.
The insurer and its experts have not identified any factor, other than the leak, which explains the timing and location of the damage.
The house has a history of movement-related damage, some of which has been patched over. However, the evidence does not show the damage around the extension border is part of an ongoing pattern of movement-related damage.
The evidence shows, on the balance of probabilities, that the damage around the extension border was caused by the leaking pipe. This is because:
The policy covers the identified damage to the kitchen, living room, hallway, staircase, and the east side of the dining room. It also covers any damage caused by the saturation of the stumps.
The policy does not cover the identified damage to the west side of the dining room, bedrooms, or external brickwork. The evidence does not show this damage was caused by the leak.
A party making an insurance claim must establish they suffered a loss that is covered under the insurance policy. They must establish this on the balance of probabilities (i.e. that it is more likely than not).
If a claimable loss is established, the insurer must accept the claim, unless it can establish the application of a relevant exclusion. The insurer must establish the exclusion on the balance of probabilities.
The cover provided by the policy is set out in the certificate of insurance and the product disclosure statement. Relevant policy terms are quoted in section 3.2 of this determination.
The policy covers damage caused by ‘insured events’, including ‘sudden escape of liquid’. This section of the policy covers damage caused by a ‘sudden and unexpected’ leak from a water pipe.
The policy also has optional additional cover for ‘accidental damage’. The policy defines ‘accident’ as an event that happens ‘unexpectedly and unintentionally’. This section of the policy excludes cover for ‘damage that occurs gradually’.
The plumber said the pipe had been leaking for ‘quite a while’ but did not say how they knew this.
The insurer said the leak was slow. AFCA asked the insurer what evidence showed the leak was slow. The insurer said they asked the loss adjuster, who advised ‘the extent of damages’ at the property indicated the leak was slow. This is inconsistent with the insurer’s position that the leak did not cause any damage. The insurer did not give any other reason for concluding the leak was slow.
Having considered the information provided by both parties, I am satisfied the leak was sudden and unexpected.
The evidence shows, on the balance of probabilities, that the house was damaged by a sudden and unexpected leak. This damage is covered under ‘sudden escape of liquid’.
The evidence shows, on the balance of probabilities, that the house was damaged suddenly, unexpectedly, and unintentionally. If this damage was not covered under ‘sudden escape of liquid’, it would be covered under ‘accidental damage’.
The complainant has established a claimable loss. The insurer must accept the claim, unless it can establish the application of a relevant exclusion.
The policy excludes cover for damage caused by certain factors, including:
AFCA and its predecessors have taken a consistent approach to policy exclusions for earth movement. AFCA’s position is that the exclusions apply to normal earth movement, but do not apply to earth movement directly caused by an insured event. This approach, and the reasons for it, are explained in more detail in Determination 707124.
The insurer says complainant’s home was damaged by normal, long-term earth movement. However, for the above reasons, I am satisfied the damage was caused by earth movement directly caused by an insured event (the leaking pipe).
The complainant’s home was damaged by the shrinking and or expanding of earth, which was caused by water that disappeared beneath the surface. Therefore, I have considered whether the above exclusions should apply, even if the source of the water was a sudden and unexpected leak.
The policy says it covers damage caused by sudden and unexpected leaks. This cover would be severely limited if it was subject to the above exclusions. The policy would only cover damage caused by escaping liquid saturating building materials and damaging them directly. It would not cover damage caused by water washing away or leaking into soil. It would not cover any damage caused by a leak from an underground pipe. This is inconsistent with the insuring provision, which specifically says the policy covers leaks from sewerage pipes. For these reasons, it would not be fair to apply the exclusions to damage directly caused by a sudden and unexpected leak.
The insurer must cover the following damage:
The complainant has established, on the balance of probabilities, that the above damage was caused by a sudden and unexpected leak. The insurer has not established that it is entitled to apply any exclusion to the above damage.
The stumps around the leak were saturated. It is not clear whether they require any repairs. If the saturation damaged the stumps, this damage is covered under the policy.
The insurer is not required to cover following damage:
The evidence does not establish, on the balance of probabilities, that the above damage was caused by a sudden and unexpected leak, an accident, or any other insured event.
The policy says the insurer can settle a claim by repairing damage or paying the cost of repairs. It says the insurer will decide how to settle the claim in consultation with the complainant.
The insurer must consult with the complainant and decide how it will settle the claim. It must be fair when making this decision.
The insurer may ask the complainant to provide information, or access to the property, to help it decide how to settle the claim. The complainant must comply with the insurer’s reasonable requests.
If the parties cannot agree on a fair claim settlement, the complainant may lodge another AFCA complaint.
The complainant’s house has a history of movement-related damage. However, the evidence indicates it was also damaged by a sudden and unexpected leak. The policy covers this kind of damage.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. I have reviewed and considered all of the information the parties have provided.
While the parties have raised a number of issues in their submissions, I have restricted this determination to the issues that are relevant to the outcome.
The complainant was represented by a lawyer. In this determination, statements by the complainant’s representative are treated as if they were made by the complainant.
Your Building Cover (page 7) | ||||||||||||
Your building sum insured is $559,377 … The table to the right lists the insured events and optional covers offered under the building section of your policy and indicates which of them you are covered for. For full details, including exclusions, claim limits and the terms and conditions of cover, please refer to the PDS. |
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Amendments to the PDS (including your Policy Document) (pages 1– 2) |
Page 3 – Under ‘There are words and phrases used throughout this PDS that have special meanings. The meaning for each of these is provided below and should be considered when reading this PDS.’ Insert: Accident An event that happens at your insured address unexpectedly and unintentionally. It does not mean a weather, flood or bushfire related event. |
Glossary (pages 3 – 4) | |||||||
There are words and phrases used throughout this PDS that have special meanings. The meaning for each of these is provided below and should be considered when reading this PDS
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Insured Events (pages 29 – 36) |
We will provide cover for the following Insured Events if they occur during the Period of Insurance. You are not covered if an exclusion applies. These are listed either as:
… |
Sudden escape of liquid What is covered Your building and/or contents are covered for loss or damage caused by the sudden and unexpected escape of liquid from any:
… Where we pay the claim for loss or damage, we will also pay:
What is not covered You are not covered under this Insured Event where a General Exclusion applies (pages 54 to 56). |
Optional Covers (pages 47 – 53) |
Accidental damage … What is covered You are covered for loss or damage to your building and/or contents caused by an accident at your insured address which is not otherwise covered under another section of your policy. What is not covered … There is also no cover under this Optional Cover:
… |
General Exclusions (pages 54 – 56) |
General exclusions apply to all sections of this policy except for Domestic Workers Compensation cover. Under this policy there is no cover provided for any loss, damage or liability caused directly or indirectly by or in any way connected with: …
…
…
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How we settle a claim (pages 61 – 64) |
Building, Contents and Portable Contents claims If we pay your claim we will, in consultation with you:
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