Following the recent inundations throughout most of the State, insurance companies will start to receive the numerous claims that people will be lodging for losses that were suffered. People need to be aware, however, that their policy may not cover flood damage. Especially for those who live in areas which were affected by the 1974 floods, insurance companies may often have flood prohibitive clauses in their policy statements. Simply put, these clauses restrict claims in the event that the inundation happened as a result of expanding rivers, dams and lakes.
This is not the first time that this issue has been raised. In Hams v CGU Insurance Ltd [2002] NSWSC 273, Justice Einstein was required to consider whether the inundation as a result of torrential rain fell within the scope of the definition of flood as contained within the policy.
In that case the plaintiff’s leased a sheep station in New South Wales. The land which they leased had various depressions running through it, which were described by the parties and by His Honour as a valley. The plaintiff’s had most of the buildings of their sheep station in the lower areas of these valleys.
The insurance policy that the plaintiff had with the defendant specifically excluded flood damage, and defined flood as “inundation following the escape of water from the normal confines of any lake, reservoir, dam, river, creek or navigable canal, as the result of a natural phenomenon which has some element of violence, suddenness or largeness about it but does not mean inundation of water from fixed apparatus, fixed tanks, fixed pipes or run off of surface water from surrounding areas”.
The defendant denied liability under policy that the run off which caused flooding and severe damage to the plaintiff’s property in the valley, was as a result of the expansion of rivers and lakes in the surrounding areas. In the alternative, the defendants argued that the damage was caused partly by flood and therefore it was also excluded under the policy in pursuance of the Wayne Tank principle (as laid down in Wayne Tank And Pump Co Ltd v The Employers Liability Insurance Corporation Ltd [1974] QB 57).
The plaintiff’s argued that the run off was surface water by virtue of the lay of the land, namely that it was in a valley and that water would be running downhill from the torrential rain.
Further section 35 of the Insurance Contracts Act of NSW required insurers of certain contracts to either comply with the standards established by regulation or clearly point out to their clients that the Policy with which they were purchasing is not in accordance with the standards established by Regulation.
Justice Einstein held that the Plaintiff’s could not prove that the body of water they allege expanded and escaped from its natural confines was a lake as they could not define the natural confines of that body of water. Therefore, the first ground of the Plaintiff’s claim failed. At that point the Plaintiff’s second claim that the Defendant had failed to comply with the Insurance Contracts Act became the primary consideration of the Court.
The Australian Securities and Investment Commission, who intervened to make submissions on the interpretation of section 35 of the Insurance Contracts Act, submitted that it would depend entirely upon the method and wording of such communications outlining a policies failure to comply with Regulation which would become subject of a section 35 claim.
Ultimately his Honour agreed with the Commissions Submission but held that in this case the mere provision of the policy which clearly laid out the flood exclusion was sufficient to satisfy section 35 of the Act. Ultimately his Honour dismissed the claim.
As you can see from above, construction of a policy is of vast importance to determining exactly what events are covered. Should you have any queries about your policy or be having issues claiming for recent flood damage please do not hesitate to contact our Commercial Law Team on 1300 428 947 or at
commercial@hatzis.com.au
