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Determination
Case number | 12-00-1007586 |
Financial firm | Insurance Australia Limited |
Case number: 12-00-1007586 11 October 2024
The complainant, together with her partner, holds a home and contents policy with the financial firm (the insurer). On 13 June 2022, the complainant lodged a claim with the insurer for damage to her property following an escape of water event that occurred on 17 July 2020.
The insurer has denied the claim and says that the complainant has not established a claimable loss. The insurer says that the damage has been caused by:
an increase in rainfall
lack of drainage; and
inherent defects in the sewer and storm drainage system.
The complainant disagrees and wants the insurer to accept the claim and repair the damage. She maintains that the damage identified in 2022 was due to a leaking kitchen pipe which was repaired in 2020 or from a previous escape of liquid claim in 2015.
The complainant is represented by her broker, HP. For brevity’s sake, HP and the complainant will be referred to below as ‘the complainant’, unless context requires otherwise.
No. The panel is satisfied that the complainant has established a claimable loss due to accidental damage to the property. The panel is not satisfied based on the available information that the insurer has established its reliance on its exclusion clauses to deny the claim.
The complainant has established a claimable loss under the policy terms in relation to the damage at the property. The insurer has not established that the damage is the result of excluded clauses. It is therefore fair that the insurer accepts the claim.
This determination is in favour of the complainant.
See section 2.1 of this determination for the steps to be taken.
No. The panel is satisfied that the complainant has established a claimable loss due to accidental damage to the property. The panel is not satisfied based on the available information that the insurer has established its reliance on its exclusion clauses to deny the claim.
The complainant is required to show, on the balance of probabilities (that is more likely than not), that she suffered a claimable loss under the policy. This means that she must show the loss was caused by a risk for which she is insured.
Once the complainant, on balance, establishes a claimable loss, the insurer is liable for the loss unless it shows an exclusion or limiting condition applies. The insurer has the onus of proving, on balance, the application of the exclusion or condition.
The complainant lodged a previous claim in 2015 for earth movement from an escape of liquid (EOL) event. The claim was accepted, and some limited underpinning was carried out to the front of the property. The damage was located near the bay window. The claim was closed in 2016.
In 2020, the complainant reported further movement and cracking, which she says was because of the initial repairs being inadequate. Further leak testing was done which revealed three leaks on the southern side of the property. A leak was also detected near the kitchen which the complainant says has caused the observed damage.
The complainant’s policy is an Accidental Damage policy. Pages 13-14 of the Product Disclosure Statement (PDS) provides that cover for accidental loss or damage is restricted under specific conditions, including an exclusion for any accidental damage caused by settling, shrinkage, or any movement of the earth.
The insurer claims that the complainant has not established a claimable loss. Rather, the damage is the result of ground movement and a lack of adequate drainage. Both of which are excluded under the policy.
The parties do not dispute that the property is damaged. However, the issue in dispute is the proximate cause of the damage. This is a question of fact depending on the circumstances. The proximate cause is not necessarily the first or last or the sole cause of the loss. It is the effective, dominant or operative cause of the loss.
The insurer obtained a report from an engineer SW who attended the property on 12 July 2022 and provided a report dated 29 July 2022. SW observed damage to the internal wall, ceiling and floor areas of the entry, formal lounge, kitchen and bedroom 3. SW also observed undulation to the external crazy pavement of the pergola area and concrete pathway along the south and west side of the property.
SW noted the previous history of damage to the sewer and storm drainage systems in 2015 and had reviewed a report from MP dated 14 July 2015. Further, that the complainant had reported a recurrence of damages to the sewer and stormwater drainage systems (at different locations) in 2020.
SW found that:
…we consider the compounding effect of lack of adequate drainage and increase in received rainfall between 2020-current has been the dominant factor in contributing to building movement as claimed by the insured.
We opine that the excessive amounts of moisture and lack of adequate drainage have consolidated the subsoil layer of the external pavement areas in the south and western regions.
SW also found that the damage to the internal wall, ceiling, floor area and external pavement areas has been caused by:
building movement from foundational soil reactivity
omission of sarking
lack of articulation/expansion/contraction provisions to the internal wall, ceiling and floor areas
consolidation and erosion of subsoil in the external pavement areas from increased water ingress not from an insurable event.
SW also responded to further questions from AFCA in relation to the drainage. SW says that the southern backyard area and the western alignment of the property lack any drainage. Therefore, this could trigger increased foundational activity to cause damage to the internal/external fabrics of the property.
SW referenced the AS CA38 – 1971 SAA Light Timber Framing Code which it says highlights the importance of site drainage or diversion channels to prevent movement related damage within a building.
The insurer says based on the report from SW, the damage has occurred both internally and externally to the property because of building movement from soil reactivity compounded by several factors. It says this has happened over an extended period of time and not related to any insurable event. The insurer therefore claims that the complainant has not established an insurable event.
The complainant says that she was only made aware of the pipe damage near the kitchen in 2020, which was repaired. The complainant says that the kitchen sink is frequently used and therefore would have generated a considerable amount of water leakage into the highly reactive soil. The complainant says that this is the cause of the damage.
The complainant says that the following cracked pipes were repaired in October 2020:
stormwater pipe behind garage
damaged stormwater pipe at the front of the property
severe blockage in the laundry area
broken pipe in the kitchen.
Alternatively, the complainant says that damage relates to defective repairs following the repairs to the property following an EOL claim in 2015. She says that the engineer recommended reduced underpinning which she say has now caused the additional damage.
The complainant says:
the house was constructed in 1982 and therefore the references to the Building Code by SW are incorrect
the floor is a concrete slab- MP’s report dated 16 February 2015 confirmed that the home is supported on a 1650mm to 1750mm deep by 150mm wide grillage raft
SW reference to flooring consisting of timber floor bearers and joists is incorrect
therefore, SW’s reference to the sub-floor area along the south and western face having ineffective drainage allowing water seepage under the sub-floor is also incorrect.
The complainant’s previous EOL claim recorded the date of loss as 12 November 2014. A crack was found in the stormwater pipe at the front of the property which was found to have caused the foundations under the master bedroom to move under the master bedroom bay window.
The insurer at that time appointed an engineer MP, to prepare a Scope of Works (SOW) for the necessary repairs to the property which included underpinning.
MP provided a further report dated 2 July 2015. MP notes:
During the underpinning excavation of the western elevation piers, a likely sewer pipe leak was uncovered outside the ensuite window. The ensuite branch pipe was exposed during the underpinning excavation and sewer waster water was seen freely spilling into the excavated pier hole. Sewerage waste water was also seen to be oozing out from the fact the soil surrounding the ensuite branch pipe.
MP concluded that the pipe leak discovered by the complainant’s plumber GP was minor in comparison to this leak. MP concluded based on the extent of the saturation that the leak had been occurring for some time and had likely caused the soil mound heave under the master bedroom, causing the movement to the bay window.
A revised SOW was obtained following the discovery of a significant pipe leak near the area of the underpin construction.
MP recommended continued monitoring of the property with annual level surveys and observations to be conducted at the end of each summer. MP requested that any change in the property is reported and a review of whether further underpinning is required. Importantly, MP noted in this report:
It is likely to be many years before the soil affected by the ensuite pipe leak returns to a condition that was present before the ensuite pipe leak. It is possible that no further underpins may be required, but it is also possible additional internal underpins and external underpins may be required should the events that led to this claim be the cause of damage, specifically to the original home near the ensuite pipe leak location as the soil dries.
On 15 May 2016, MP re-attended and conducted a perimeter masonry level survey following the underpinning repairs.
There was only the one inspection to the outside of the property. The insurer has not provided any explanation why no further inspections were undertaken.
The panel is satisfied that the complainant has shown a claimable loss under the policy terms. On balance, the blocked kitchen sewer line was likely a major causal factor of the observed damage claimed in 2020, together with the previous 2015 claim. There is no persuasive evidence that the damage was expected or intended. Rather, it was accidental.
The insurer appointed an engineer IE to inspect the property in 2020 when the complainant reported further damage. IE provided reports dated 25 May 2020 and 12 June 2020. The insurer has not sought to rely on these reports. IE noted new damages to the ceilings, entry way and formal lounge. Minor damages to ceilings and cornices on the western side of the building were also noted. IE records the complainant as having first observed damage some 12-18 months earlier.
IE reviewed the plumbing test that had been completed by plumber SA dated 7 May 2020. SA found there was a leak somewhere upstream to the laundry branch to main drain connection and the head vent. The location could not be confirmed due to a blockage.
In IE’s report dated 25 May 2020, it reported it was possible that the kitchen pipe leak had caused the soil heave resulting in the footing beam/floor plane curvature change contributing to some cracking. IE referred to the 2015 soil reports that noted that the soil is extremely reactive.
IE however concluded that, based on one inspection, it was not possible to conclude the cause of damage was solely due to seasonal soil drying, acting predominantly to the dwelling’s eastern and rear elevations.
IE did not have the benefit of the test results from SA dated 18 July 2020 which confirmed that there was a broken junction to drain connection which was located outside of the kitchen sewer pipe. There is no evidence that the insurer referred SA’s plumbing results back to IE for further comments.
In SA’s report, it found three leaks on the southern side of the property, with the broken junction closest to the kitchen. These leaks were recorded with a loss of approximately 14 litres per minute. Further, while IE recommended re-inspection and perimeter masonry level surveys to be conducted at the end of October 2020 and end of April 2021, there is no evidence that these inspections were undertaken.
The complainant has confirmed that the repairs to the pipes were completed in October 2020.
IE says that the 2015 plumbing investigations reported the pipe leak in the kitchen and noted that the leak was to be repaired and the property’s pattern of cracking and perimeter footing beam response monitored. However, the complainant disputes this and says that it was the laundry that was repaired in 2015. The insurer did not seek a response from IE.
The insurer did appoint SW to inspect the property. However, SW was given limited information in relation to the 2015 EOL claim. SW refers to the report from MP dated 14 July 2015 only. Further, SW refers only to the SA plumbing report dated 7 May 2020 and not the subsequent report dated 18 July 2020. Again, as noted above, the broken junction was only reported after the blockage was removed in the subsequent report dated 18 July 2020.
SW refers to the drainage issues at the property and says that these have contributed to the movement at the property. However, the panel is satisfied based on the reports from IE and MP that the foundations are not timber floorboards and joists. Therefore, the panel is not satisfied that the sub-floor drainage is a contributing factor as suggested by SW.
SW refers to the increase in rainfall received between 2020 and 2022. However, IE in its report dated 25 May 2020 records the complainant as first noticing the cracking some 12 to 18 months earlier. The panel is therefore not persuaded that the rainfall and seasonal movements is the proximate cause of the damage.
SW provided further comments about the possible influence of the previous repairs and leaks. SW responded:
From our review of the MP report dated 2 July 2015, we note that a leak was identified by G Plumbing, in the ensuite pipeline about the northwestern alignment of the dwelling.
In clarifying the expected pattern of damage from leaking pipework, we refer to an extract from the Practical Guide to Diagnosing Structural Movement in Buildings for Leaking Drains and Water Discharge Near to Buildings. This reference highlights subsequent damage from pipe leaks would manifest as diagonal cracks in brickworks near the vicinity of the leak.
Considering that no evidence of damage or distress was noted to the external fabrics of the dwelling in the vicinity of this leak location, we opine that the leak event in 2015 has not affected or contributed to the current damage claimed.
SW also says that:
The omission of sarking, temperature variances within the roof cavity, and inadequate provisions for thermal expansion have caused the ceiling plasterboard lining to weaken and become susceptible to damage from building movement.
However, SW has appeared not to have considered comments made by MP in the earlier report dated 26 February 2015 where it was noted:
The roof trusses are likely to be out-of-plumb and therefore the roof will require replacement.
The insurer has not provided information to suggest that these repairs were completed.
The panel is not satisfied that SW has discounted the effects of the 2015 or 2020 leaks given the limited history that has been reviewed, together with several errors including the building foundations.
The panel is satisfied that the observed damage has been caused by an escape of liquid from a fixed pipe from either the 2020 or 2015 events. The panel is not satisfied that the insurer has established that any of the observed damage is due to any other factors.
The insurer is therefore required to accept, assess and settle the claim related damage in accordance with the policy terms and conditions. In doing so, the insurer must consider whether any policy additional benefits such as temporary accommodation during the repair period apply, and cover those.
The insurer has not assessed the claim related damage.
If the complainant provides written notice she accepts the determination:
within 21 days of receiving the notice, the insurer is to engage an engineer to prepare a SOW and then obtain a quote actionable by a retail customer and based on current pricing for the claim related repairs. The SOW is to include an estimate of how long (if at all) the property will be unliveable during the repair process, and an indication of whether the builder is able to warrant the repairs
within 14 days of receiving the SOW and quote, the insurer is to provide a copy to the complainant
within 14 days of receiving the SOW and quote, the complainant is to inform the insurer in writing whether she wants the insurer to attend to the repairs or receive a cash settlement
if the complainant wants the insurer to attend to repairs and the builder is able to warrant the repairs, the insurer is to promptly arrange for the repairs to be undertaken
if the complainant wants a cash settlement:
> and the builder is unable to warrant the repairs, the insurer is to pay her the quoted amount and any applicable additional benefit (such as temporary accommodation) plus a 20% uplift for contingencies and loss of lifetime guarantee that applies to insurer approved repairs
> and the builder is able to warrant the repairs, the insurer is to pay her the quoted amount and any applicable additional benefit (such as temporary accommodation) without any uplift
the insurer is entitled to apply the policy excess.
The complainant has established a claimable loss under the policy terms in relation to the damage at the property. The insurer has not established that the damage is the result of excluded clauses. It is therefore fair that the insurer accepts the claim.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
the legal principles
applicable industry codes or guidance
good industry practice
previous decisions of AFCA or its predecessor schemes (which are not binding).
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.
Due to the nature of this complaint, we referred it to a panel for determination. The panel includes:
an ombudsman
a member with significant experience in consumer and small business advocacy
a member with extensive experience in the insurance industry.
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:
available documents
the recollections of the parties
all relevant circumstances.
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.
