In February 2012, Jim’s insurance broker organised for the renewal of his material damage insurance policy.
Later that year, the sales building on Jim’s car yard had a leak, with water getting inside the walls and causing the studs to rot. Jim attempted to fix the leak with additional flashings which cost approximately $8,000.
When Jim’s property suffered further damage, he made a claim to his insurer. Before doing so, Jim talked to his broker who told him he thought Jim would be covered because ‘gradual damage’ was included in the policy.
Jim’s insurer declined the claim because the damage had not been caused by water accidentally leaking from a piping or water system. In the insurer’s view, inadequate flashing did not meet the necessary definition of “piping or water system” for cover under the gradual damage clause. It was also noted that pay out was limited to $5,000 whereas Jim’s claim totalled $30,000.
Dispute
Jim complained to FSCL that his broker had been negligent in not ensuring this sort of damage was included in his policy. Jim said that if it was not covered, then the broker had failed to put in place the policy required and should compensate him for the cover which should have been in place.
Jim also claimed he had been inconvenienced by being told by the broker to make a claim under his policy.
The broker had since retired from the industry so it was difficult to pinpoint exactly what had been discussed when the policy was placed and whether the broker had misrepresented the level of cover.
Review
We talked to an insurance industry expert to gain a greater understanding of the way gradual damage cover generally works. She commented that this sort of cover was typically capped at $5,000 and that no other insurers would have covered such a gradual damage claim. She said Jim’s policy seemed very comprehensive and even he did not have cover.
Given the policy did not have a definition of piping or water system, we asked the industry expert and an engineer what constituted a ‘water system’. They believed that the roof and flashing would be considered ‘weatherproofing’ rather than ‘piping or water system’.
As such, the gradual damage extension of the policy was not met.
Resolution
We believed that the broker had not done anything to cause Jim’s financial loss. Although the broker gave Jim false hope that he would have cover, no other policy in the industry would have provided cover for such circumstances.
Jim had already suffered the leak when he asked the broker if he should make a claim. The leak had occurred as a result of a building imperfection and Jim held all available cover. While the broker had made a mistake by prematurely asserting the claim might be paid, the actions of the broker did not contribute to Jim’s financial loss.
When Jim did not get back in touch with us to provide any material information likely to change our mind, we closed Jim’s file.
Insight for consumers
It is important to familiarise yourself with your policy rather than relying on the word of your broker. Although they are there to act in your interests, this does not mean they are accountable to you for every word they speak.
