Insights for consumers
It’s common for building insurance policies to have exclusions where the cause of loss is a ‘design defect’.
What happened?
Steve’s commercial building suffered water ingress and damage following the Auckland Anniversary Weekend flooding event in January 2023. He submitted a claim to his insurer under his material damage policy. The insurer obtained a building consultant’s report to determine what caused water to enter the building. The consultant’s report said aspects of the building design were defective because:
- The gutter was leaking which allowed water to get into internal spaces.
- There was only a single undersized outlet from the roof which was blocked by debris.
- An internal gutter was at a very shallow gradient which allowed water to pond.
The combination of these defects meant water overflowed into the internal roof space.
The insurer agreed to pay a relatively small amount to repair the ‘cosmetic’ internal damage ($6,500). However, the insurer declined to cover the much larger claim to rectify the design defects to prevent any further damage, because the policy excluded cover to fix design defects.
The insurer said there was no evidence the weather event damaged the roof or the drainage system. Rather, the drainage system had design defects which meant water could not drain off the roof adequately. The insurer also said they would not pay the ‘cosmetic’ claim until the major works to rectify the design defects had been completed, because the damage could happen again in the meantime.
Steve complained to FSCL about the insurer’s claim decision. He said that the reason water entered the building on this occasion was because of the extreme nature of the weather event. He did not consider that there were design defects with the building, and said that he had always obtained building warrants of fitness, as required, over the years. Steve also complained about the length of time it took the insurer to make a claim decision.
What was FSCL’s view?
We told Steve that the building consultant’s report was very strong evidence that water had entered the building because of design defects. We said the fact that Steve had obtained building warrants of fitness over the years was not relevant – warrants of fitness do not look at whether there are design defects with the drainage system of a building.
Steve said he would obtain his own expert report however, several months later, Steve had not been able to provide this. He then provided some brief comments from a roofing company that had been out to inspect the property. However, this evidence did not identify the actual cause of the water entering the building, and was not at the expert level of evidence provided by the specialist building consultants.
We also told Steve that the five-month wait to get the building consultant’s report and for the insurer to decline the claim, although frustrating, was reasonable in the circumstances. The complex nature of the claim meant it was reasonable for the insurer to require an expert building consultant’s report. We could also see from the file that the insurer had been doing everything they could to get a report completed as soon as possible. There was simply a long wait for expert building reports because of the widespread weather events that hit New Zealand at the start of 2023.
What was the outcome?
Steve continued to say that he was going to get his own expert report. We said to come back to us once he received this, and then we’d be able to further assess his complaint. However, Steve decided he wanted to take the complaint to the Disputes Tribunal (DT), despite the full amount of his claim appearing to exceed the DT’s financial limits, so we closed our file.