Insurance Law - Queensland, New South Wales and Victorian Flood Claims - Part 2

Welcome to our series on the recent Queensland floods, New South Wales floods and Victorian floods. We welcome you to read this this article and the others in the series. Should you have any questions we encourage you to contact us.

• Insurance Law - Queensland, New South Wales and Victorian Flood Claims - Part 1

Denials

In all such cases where there has been catastrophic water damage through the incident of storm and/or flood it is obvious that the full benefits of an insurance policy are more fully available where the cause of the damage is storm.  That is, even where an insured does not have the benefit of flood cover and they can rely upon their policy of insurance for storm cover they are far better off irrespective of the type of building damaged without extending the policy.

Although there have been a number of pronouncements reassuring the whole community that insurers will do the best they can in the circumstances, the nature and extent of the damage is such that none of them will be able to adequately cope with the call on services required in this disaster.  It is hard enough to address damage in one location but where it is widespread and involves the whole of the eastern seaboard except perhaps for southern NSW and northern Victoria and to suggest otherwise is nothing more than forlorn hope.  Putting this aside for the time being the inundation by water has been so severe that any estimates as to what the potential damage may be are nothing more than a indication of what the maximum probable loss could be in the circumstances.

Unfortunately where the insurance industry is under pressure it calls on all types of service providers in an attempt to find a service solution.  What this means is that many service providers are introduced into the insurance industry who have no knowledge local or otherwise and certainly very little technical insurance knowledge as to how to assess or quantify the damage.  As a result a number of insureds will have their claims denied based on incomplete facts and circumstances augmented by opinion from hydrologists indicating that the area in question was inundated by flood and therefore there is no or very limited cover available to the insured.  That is, some of these attempts to reconstruct what occurred after the storm waters have receded is nothing more than a best guess because it is presumed that the damage did not result from either storm or flash flooding.

The damage

It will be obvious to all that in the majority of cases there will be severe water damage and that for many months very little can be done to assist many insureds because the buildings have to be allowed to dry out satisfactorily before any real attempt can be made to satisfactorily repair them and/or paint them.  Early repainting of all exposed surfaces or where the buildings have not been allowed to sufficiently dry out will cause subsequent peeling so that the whole of the process has to be repeated.  From the estimates provided by the sources referred to in this article it indicates that insurers or others are anticipating the average cost of a claim to be $285,714.29.  If that cost does not include business or commercial risks then it could be expected that substantial costs will once again be added to this figure. Obviously many who have negotiated catastrophe treaties with reinsurers are likely to play hardball and refuse to pay claims that they consider questionable leaving it to the insurer how they want to handle this.

The consequences for Home and Business Owners

The overall result of this is that there will be a significant number of claims denied because the operative cause is considered to be flood rather than storm providing insurers with an out.  This will arise for a number of reasons the most common being inexperience of those called upon to deal with this disaster, who do not fully appreciate the intricacies of insurance and how what may appear to be flood damage is nothing more than storm damage. If any insured believes they have an entitlement to claim for the damage caused by this disaster then they call us to explore their options as how to best lodge their claim before they start volunteering information which may be detrimental to their making any form of recovery to which they would be legitimately entitled in the circumstances.

Remember, with domestic claims, there will be many issues associated with the costs of temporary accommodation and/or loss of rent and whether these entitlements can be fully relied upon in the circumstances.  As for business owners their situation will be time critical because the longer it goes on the more likely it will be that their businesses will not recover from the worst effects of this damage forcing them to the wall particularly where they do not have the benefit of business interruption or consequential loss insurance.   Even where they do and cover does not rely upon the full gross profit specification but follows the instant profits or other similar wording, it is highly likely that a full indemnity will not be available to the insured.  Insurance is complicated and more so when insureds face a catastrophe which requires them to be prudent and retain the right adviser to ensure they obtain their full entitlements under the specific policy on issue.