The unprecedented monsoonal rainfall over Townsville in February 2019 was of such ferocity that many will rightly look to their insurance policies for damage cover.
In most cases damage caused by rain should be covered. However, heavy rainfall is also a significant contributing cause to flood from other sources such as overflowing rivers, creeks and dams.
Insurance policies usually seek to distinguish between damage that is caused by rain, and damage that is caused by “flood”.
Flood will usually mean the inundation of normally dry land by water escaping or released from the normal confines of any natural water course or lake whether or not altered or modified or of any reservoir, canal or dam.
In our opinion the distinction is artificial because whether the damage is caused by
water overflowing of a river; or
water from the rain;
it is the rain event that has triggered the flood or the mechanisms for the flood to occur.
Nevertheless, some policies make this distinction and understandably policyholders are infuriated when their insurance company tells them that their loss is from flood and therefore not covered.
At the end of the day an insurance policy is a contract between two parties and must be interpreted according to the terms of that contract.
If the contract specifically excludes damage caused by “flood” then unless it has been specifically ticked off as an item of cover, the policyholder may go uncompensated. There may be remedies for a failure to warn or notify, but that will be another topic.
Recently, in 2018, a firm of Brisbane lawyers sued their insurance company for failing to pay an insurance claim that occurred during the 2010/2011 Brisbane floods.
The Brisbane floods were caused by heavy rain from tropical Cyclone Tasha which joined with a La Nina event. Amongst other things the Brisbane River broke its banks which led to evacuations in the Brisbane CBD and other places.
The law firm was a tenant of a CBD building and both the landlord and the law firm sued the insurance company.
Water had entered through the wall of the basement of the premises damaging fit out and causing disruption to the business of the plaintiff’s legal practice.
Rent was abated and the lost rental was claimed by the landlord.
The burden of proving the application of the exclusion clause falls on the insurer.
A number of expert hydrologists were called by both sides to determine where the water “technically” came from.
The court also considered what is known as the “Wayne Tank principle” from the case known as Wayne Tank and Pump Co Ltd v Employers Liability Insurance Corporation Limited. The Court said:
“That principle is said to be that where there are two proximate or substantial causes
of the one loss and only one falls within an exclusion clause, the insurer may rely upon the exclusion and avoid liability. However, there must be some doubt that Wayne Tank establishes any general principle; rather, it establishes that the proper construction of most exclusion clauses will in fact lead to a result that an insurer will avoid liability under an exclusion clause where one or more proximate causes of the loss falls within the clause.”
The Court found, after hearing from the hydrologists that the damage to the basement was caused by water from various sources:
a. river water in the pipes which had backed;
b. local run-off in the pipes;
c. groundwater in the subterranean soils between the pipes and the basement.
Damage caused by the local run-off is not damage caused by flood. However, the exclusion clause still applied because of the “Wayne Tank principle”.
Unfortunately, even though there were a number of causes for the damage, some of which did not relate to “flooding”, the court found in favour of the insurance company to allow the exclusion clause to apply.
Simply put the Wayne Tank principle is that insurers may avoid liability where there are multiple/concurrent causes of damage and only one of these causes of damage falls within an exclusion clause under the policy.
The outcome of any case will depend on the individual facts.
In our view the Wayne Tank principle is unfairly applied against the insured and should be remove from application or legislated against.
We would recommend that you review your policy and establish if you are covered.
Amongst other things you should consider the following:
What is the cause of the loss? Is it damage from the rain or from escaping water from a natural watercourse or lake?
What caused the damage first? Was it the rain or the flood? Was it concurrent?
If your insurer claims it is flood damage, then ask for proof because the onus is on the insurer to prove that the exclusion applies.
Examination of the cause of loss may require expert reporting by hydrologists.
Is the watercourse natural or man-made? If it is man-made what was the purpose of its structure and did it have any flood mitigation properties or was it always prone to flooding such that it represented a foreseeable risk. Who made the manmade lake/watercourse?
We recommend you seek legal advice and time limits to claim may apply.