Water leak causes gradual damage

Towards the end of 2021, the manager of a Body Corp noticed water appearing in the basement of their property and arranged for a plumber to find out where the water was coming from. No internal leak was found so, in February 2022, the Body Corp asked a water care specialist for help, but they also couldn’t find the source of the problem.

The Body Corp then attempted to fix the problem by putting up retaining walls around the property. While they were preparing the property for these retaining walls, they discovered a waterline that the water care specialists had failed to find. This waterline had a broken valve, causing the water leak. The Body Corp repaired this valve, and the basement dried out.

The Body Corp submitted an insurance claim of $95,528.54 under their material damage policy for the costs of the groundwork repairs, electrical damage, plumbers’ fees, drainage costs, the interior wall and door damage, and project management fees. This claim covered all the costs to repair the damage caused by the broken waterline.

The insurer then assessed the property to better understand the damage. They found rooms covered in silt and groundwater, swollen doors and skirting boards, mould leading to peeling wallpaper, and erosion of an earth cable.

The insurer initially declined the claim because the broken waterline was outside of the property and the gradual damage clause of their policy only applied cover to internal leaks.

After discussion between the Body Corp and their insurer, the insurer accepted the claim under a gradual damage policy extension paying the Body Corp the policy maximum of $10,000 as well as a further $5,000, based on a ‘trace and access’ clause in the policy.

The Body Corp then asked the insurer to reconsider the claim saying the broken valve was a single event causing the damage, and the continued flow of water had prevented them from making earlier repairs. This meant that the claim should be considered outside of the gradual claim extension, and the $10,000 maximum claim amount would not apply.

The insurer maintained their view that the damage fell within the gradual damage extension.

The Body Corp disagreed with the insurer and complained to FSCL.

Dispute

The Body Corp said the damage was caused by a single event, leading to subsequent damage to their property, which should be covered under the material damage policy. The Body Corp explained that because the gradual damage clause did not apply, the insurer was obliged to compensate them for the full cost of repairing the damage.

The insurer maintained they had correctly assessed the claim and that the damage caused by the leak was gradual damage under the policy extension and they had correctly paid $10,000 for the gradual damage plus $5,000 for the trace and access extension.

Review

We reviewed the gradual damage extension within the policy and how it applied to damage caused by “water that leaks, overflows, or is discharged”.

We considered the water care specialist’s enquiries regarding the cause of the leak and were satisfied that the water entry was slow/gradual, when discovered by the Body Corp in late 2021.

We also considered the insurer’s assessment report of the property, as well as an invoice from the Body Corp’s property maintenance team which referred to a “water leak”.

The policy referred to gradual damage, mildew, mould, and rot as different specified types of damage that fall within the gradual damage extension. We decided that the peeling wallpaper and the need to redecorate the basement as a result of mould (caused by ongoing presence of moisture) fell under the gradual damage extension. It was also our view that the swelling of the doors and skirting boards was a result of exposure to water which also appeared to fall under the definition of “gradual damage”.

While there was insufficient evidence to say that chemicals in the water caused the earth cable corrosion, we were satisfied that corrosion, by its nature, is a gradual process and fell within the gradual damage definition.

Finally, we could see no connection between the groundworks undertaken and the nature of the damage caused by the leak. We acknowledged that the Body Corp had attempted to remedy the water damage, but this type of loss wasn’t covered in the policy.

We said that the insurer had correctly assessed and paid the claim.

Resolution

The Body Corp accepted our view and agreed to discontinue their complaint.

Insights for consumers and participants

This case note shows the importance of an independent view. The Body Corp came to us concerned that the insurer had not properly assessed the claim. We were able to reassure the Body Corp that the claim had been correctly assessed and paid out.