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Determination
Case number | 922906 |
Financial firm | Allianz Australia Insurance Limited |
Case number: 922906 14 May 2024
Company G (the complainant) has a farm pack insurance policy (the policy) with the financial firm (insurer). It lodged a claim for damage to two houses (House P and House H) on the farm property following an earthquake on 9 November 2018 (the earthquake).
The insurer denied the claim. It says the proximate cause of the cracking damage was long-term soil movement and pre-existing brick mortar deterioration, and not the earthquake.
The complainant is not satisfied with the insurer’s decision. The complainant says it must accept the claim and cover the damage caused by the earthquake and reimburse the complainant for expert costs.
Yes. The proximate cause of the damage was existing wear and tear and long-term soil movement which are excluded under the policy.
Yes. The proximate cause of the damage was long-term soil movement which are excluded under the policy.
While I empathise with the complainant’s position, the evidence shows the insurer is entitled to deny the claims. It would not be fair in the circumstances to require the insurer to accept the claims.
This determination is in favour of the financial firm.
Yes. The proximate cause of the damage was existing wear and tear and long-term soil movement which are excluded under the policy.
The complainant says House H suffered the following damage due to the earthquake:
The complainant’s expert has attributed 90% of this damage to the earthquake.
The complainant carries the initial onus to show, on the balance of probabilities, it has suffered a loss caused by a risk insured under the policy. This is commonly known as a ‘valid’ or prima facie claim.
Once this is established, the onus shifts to the insurer to show, on the balance of probabilities, a policy exclusion applies or that it is otherwise entitled to decline the claim.
The complainant’s policy provides accidental damage cover for the home building and contents, as follows:
2. Earthquake and/or Tsunami
(Applicable if You have Buildings cover or Contents Cover or both, shown in Your Policy Schedule)
We will pay for loss or damage caused by earthquake and/ or Tsunami. An excess of $200 or the amount shown in the current schedule, whichever is the greater, applies to loss or damage caused by an earthquake and/or Tsunami or a series of earthquakes and/or Tsunami during any period of 72 consecutive hours.
The parties have agreed a 5.4 magnitude earthquake occurred on 9 November 2018. The epicentre of the earthquake was approximately 45km from House H. Geoscience Australia has the estimated damage radius of the earthquake was limited to 27km.
The complainant has engaged a “consulting engineer” to provide reports. While the complainant’s expert acknowledges House H was 45km from the epicentre (and therefore outside the radius of damage published by Geoscience), it says House H is located on rocky outcrops and the claimed damages have been triggered by the earthquake due to a release of energy to the surface.
The complainant’s expert also notes that (emphasis added):
The amount of damage caused to a structure near or far from an earthquake depends on the size of the structure, its construction, (rigid eg brick or flexible eg timber framed), and the level of maintenance completed. Other significant dependencies include the type of soils (loose soils, sand, rock), the condition of the home (new of old) and the size/magnitude of the earthquake.
In this case the property was within a 50km radius of the earthquake, other properties viewed at a similar distance from the epicentre had indicated similar or lesser damage. The widespread nature of the damage, as presented, is consistent between homes and in the opinion of the writer relate to recent the earthquake activity in 2018.
The complainant’s expert acknowledges House H had underlying or latent conditions. However, the expert noted these ground vibrations and the associated patterns of these vibrations has opened new and previously repaired areas.
The insurer has engaged a “forensic civil and structural engineer” to provide reports. The insurer says the damage to House H was caused by long-term foundation movement and pre-existing brick mortar deterioration and therefore predated the earthquake.
The policy does not cover loss or damage from soil movement including erosion, landslide, mudslide or subsidence unless it is directly caused by or occurs within 72 hours of an earthquake.
The policy also excludes cover for loss or damage caused by or arising from wear and tear, lack of maintenance and from settling, shrinkage or expansion in buildings foundations, pavements or walls.
The insurer’s expert has also disputed the complainant’s expert’s analysis of the soil on which House H (and P) was built on. The insurer’s expert says the complainant’s expert has provided no evidence to show the houses were built on rocky outcrops.
Proximate cause of damage needs to be identified
Determining the proximate cause of a loss is a question of fact, depending on the circumstances in the particular case. It is well established law that a proximate cause is not necessarily the first or the last or the sole cause of the loss. It is the effective or dominant or operative cause of the loss.
If there are several causes of a loss operating contemporaneously, each must be examined for the qualities of reality, predominance and efficiency as the active, efficient cause that sets a relevant chain of events in action. If one cause would have caused the harm in any case, and the other would not have done so in the absence of the first, the first is the proximate cause.
If it is not possible to identify which of two or more causes is the proximate cause, then they will generally be regarded as concurrent proximate causes. Concurrent causes can occur where there are two or more events, each of which is independently capable of causing the loss, or where there are two events each of which, without the other, could not have caused the loss. In either case they are only concurrent if of equal efficiency; and if they are equal, and one of those causes was an insured event, and the other an excluded event, then the excluded event would prevail.
The insurer’s expert identified the following damage it says was pre-existing:
The complainant’s expert identified “extensive fretting of mortar to northern side of home near gardens.”. The complainant’s expert attributes the long-term environmental decay of mortar to mild acids developed from gardens, and/or poor mix at construction. The complainant is not claiming the fretting as damages in this claim.
The complainant’s expert also noted:
The complainant’s expert also noted House H would be:
prone to localised settlement damage due to the shallow footings. By installing an apron around the homes this protects the soils around the foundations from extreme dehydration and hydration.
Both experts have identified damage, similar to the complainant’s claimed damage, that predated the earthquake. Therefore, the earthquake could not have caused the pre-existing damage, and it must have been caused by another factor (such as long-term movement or wear and tear). This supports the insurer’s opinion the claimed damage was caused by excluded events.
The insurer noted House H had undergone the following work:
The insurer’s expert noted the rooms that had undergone recent renovations were spared from the claimed earthquake damage.
I acknowledge both parties have provided expert reports and the experts have differing views on the cause of the damage.
Considering the available evidence, I am satisfied on balance, the damage to House H predated the earthquake. While the earthquake may have exacerbated the damage, I am not satisfied the earthquake was the proximate cause of the damage.
This finding is based on:
While both experts accept it is possible in the right conditions for House H to suffer earthquake damage despite being outside of the radius of damage, the insurer’s expert has disputed these conditions existed in the House H claim. The evidence before me does not establish on balanced, these conditions existed.
Both experts detailed significant pre-existing damage to House H. This damage was similar to the claimed earthquake damage. This again supports the damage was pre-existing.
The insurer’s expert has highlighted the condition of the external brickwork on the northern wall of the house and its correlation with the damage to the internal northern walls. This is further persuasive evidence the earthquake was not the sole cause of this damage and wear and tear played a significant role in the damage.
Even if I was satisfied the earthquake was a proximate cause of House H’s damage, this would be a concurrent cause with other excluded events (wear and tear, long term movement). In such a case, the insurer would be entitled to rely on the exclusion to deny the claim.
Yes. The proximate cause of the damage was long-term soil movement which is excluded under the policy.
The complainant is also claiming damage to the internal and external walls for House P.
The complainant says as House P was 45km from the epicentre and located on rocky outcrops, the claimed damages must have been caused by the earthquake. The complainant’s expert has attributed 90% of this damage to the earthquake.
The complainant’s expert said in relation to the damages:
The complainant’s expert acknowledges House P had underlying or latent conditions. However, the expert noted these ground vibrations and the associated patterns of these vibrations has opened new and previously repaired areas.
The insurer’s expert says the proximate cause of damage was due to long-term foundation movement. They concluded that no earthquake related damage was sustained to this dwelling.
The complainant’s expert says:
The insurer’s expert also said there was an absence of seismic related ceiling damage or cracks adjacent to external wall damage which would be expected in a seismic event.
The complainant’s expert identified the following pre-existing damage attributed to short and long-term movements:
The complainant’s expert made the same recommendations to House P as it did for H in relation to installing an apron to avoid settlement damage.
The insurer noted House P had undergone the following work:
The newly renovated kitchen did not show the same damage as the other rooms.
Considering the available evidence, I am satisfied on balance, the damage to House P predated the earthquake. While the earthquake may have exacerbated the damage, I am not satisfied the earthquake was the proximate cause of the damage.
This finding is based on:
Even if I was satisfied the earthquake was a proximate cause of House P’s damage, this would be a concurrent cause with other excluded events (long term movement). In that case, the insurer would be entitled to deny the claim under the exclusion.
While I empathise with the complainant’s position, the evidence shows the insurer is entitled to deny the claims. It would not be fair in the circumstances to require the insurer to accept the claims.
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. We have reviewed and considered all of the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
