Insurance Law - Storm Claims and the Newcastle/Hunter Region

Date: June 21, 2007

Authors: Frank Egan B.A., LL.B., A.C.L.A., F.T.I.A. (Notary)

Although underinsurance or the lack of insurance is a major problem for the community in both good and bad times its importance is critical in times of natural disasters including storms and cyclones. Every time there is a major storm either general or localised flooding is a problem. It becomes a problem for a number of reasons, the major one being that flood cover is not normally available on both personal and business lines products. Where it is, the extent of it is normally circumscribed by limiting it to either 5% or 10% of the sum insured or alternatively by only providing for flash flood with a policy limit perhaps $5,000 or $10,000 depending upon the particular insurer involved. In times of natural disasters insurers do the very best they can to try and protect their policy base but like all other businesses they are accountable to their shareholders.

What this really means is, that in most major storm scenarios, insurers will take the point as to whether the damage caused was a direct result of storm and tempest or alternatively is due to flood. One of the reasons why they have to do this is because they have never received a risk weighted flood premium as normally all that is covered is storm and tempest and/or rainwater. As a result many policy holders affected by these events deny that their claim was caused by flood and was purely and simply the direct result of rainwater penetration. Interestingly, there is a different test applied for damage to buildings as against damage to contents for personal lines insurance.

Although some commentators have indicated that some insurers will pay flood claims not all will and it can be expected that this will be a hotly contested issue in some quarters. As with all major past storm events and/or catastrophes a number of arguments often arise, one being that there was genuine storm damage caused prior to the time flood took effect and as a result they are entitled to claim for this proportion of the loss. This argument has validity in some cases and given the nature and extent of the damage caused by the current disaster, it can be expected to be relied upon by any number of policyholders. Obviously, insurers are in the business of trying to pay claims but sometimes are unable to do so, because after all the relationship between the parties is largely dependent upon the policy which has been issued.

Often times, claims are denied following major storm events or catastrophes as the exact circumstances of what occurred is not properly understood by the insurer as resources are often stretched to breaking point and it is inevitable that this will result. Where insureds encounter these difficulties irrespective of the nature of the insurance affected, whether a brokered or non brokered risk, they should seek the services of a competent legal adviser to ensure that their rights are properly protected. Obviously something maybe overlooked by insurers when confronted by the magnitude of the tasks which they are forced to assume when catastrophes occur and often they are prepared to entertain claims which are properly presented to them where circumstances indicate they may have been in error.

There is no doubt that insurers seek to rely upon their own internal disputes resolution processes and the insurance ombudsman service to try and deal with disappointed policyholders. The problem with this is not the process or whether it may or may not be subjective or objective but rather that the information which is held by the insurer leads them to a view this claim should be denied as it does not fit within the scope of the policy cover because it is expressly excluded. Our view is that whenever this happens to you, you should try and do the best you can but if you are not being listened to and the damage is substantial then you should consider your options, one of these should be to obtain proper legal advice from an insurance lawyer who fully understands your predicament irrespective of the type of claim and knows how to address the issues.

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