Flood, storm run-off or action of the sea?
Insurance companies and homeowners may not see eye to eye on the definition of a flood. Your property could be completely under water, but where did the water come from? Is it storm run-off? Flash flooding? Or did the water come from a river or other water source overrunning its banks?
Consumers should be better protected following updates to the Insurance Code of Practice in 2014 to include a standard definition for 'flood'. The Queensland floods of 2011 prompted the reform, when many homeowners found out the hard way that it was the source of the water, and the small print in their insurance policy, that made the difference when it came to making a claim.
In line with changes brought about by the National Disaster Insurance Review, insurers have had to define flood from July 2014 as "the covering of normally dry land by water that has escaped or been released from the normal confines of any lake, river, creek or other natural watercourse, whether or not altered or modified, or any reservoir, canal, or dam".
Storm run-off vs flood
Many homeowners may understand that storm run-off and riverine flood are different events, and that storm run-off and the resulting flash flooding is not the same as a flood as defined above.
Nearly all home and contents policies automatically cover storm run-off, whereas you may have to opt in to flood cover (and pay extra). In recent years, however, many insurers have added flood cover as a mandatory component of their polices, though in some cases it's still offered as an option or not offered at all.
If you've taken out flood cover recently, check your PDS for any embargo period - the stipulated time between taking out a policy and being able to make a claim.
It's important to know that the Financial Ombudsman Service (which has now been replaced by the Australian Financial Complaints Authority) has ruled in favour of the consumer on a number of rejected claims, where the homeowner had been affected by both storm run-off and flood. Insurers had rejected the claims because the homeowner didn't have flood cover, however the FOS determined that the storm run-off occurred before riverine flooding.
King tides, actions of the sea
Actions of the sea such as king tides are rarely if ever covered by home insurance. There is, however, an important distinction between actions of the sea and storm surge involving the sea, which you may be covered for.
If you make a claim and there's a dispute about whether an action of the sea or a storm surge caused the damage, your insurer is required under the industry's code of practice to share the findings of any expert hydrology reports with you.
Any questions about your insurance regarding floods or storm events should be covered off by a key fact sheet at the start of your policy document or product disclosure statement.
The FOS has also held insurers accountable for disputed claims if the salesperson gave consumers the impression that flood cover was included in their policy, regardless of what the small print actually said.
Other changes to the Code of Practice
The Queensland floods in 2011 also brought about changes in the General Insurance Code of Practice that are currently in effect:
- A four-month deadline for accepting or rejecting a claim unless there are extenuating circumstances, including "extraordinary catastrophe or disaster as declared by the Insurance Council Board".
- A 12-week deadline for reports by external experts, such as hydrology reports; the sharing of these reports with policyholders; and an explanation of how they affect claims decisions, if requested.
- Enhanced employee training so that company staff can "carry out their claims-handling tasks and functions competently, and deal with customers professionally", with a focus on understanding a policyholder's particular circumstances.
- A new "right to claim", says insurers, "will not discourage you from lodging a claim, even if we are of the view that it is unlikely to be accepted".
In addition, the industry has promised to release future Code Compliance Committee reports that detail significant breaches of the code by insurers.