Answers on action of Sea, high water, flood and erosion
Watching the news yesterday evening and seeing the devastating damage to ocean front properties brought to my mind the typical exclusions under a home and contents policy for perils such as, actions of the sea, high water, flood and erosion, subsidence, landslip & earth movement.
I therefore ran a comparison on PolicyComparison.com for these exclusions under the “Search by Product Feature” function on these possible exclusions. The result came back in under 1 second on 273 policies in the Australian market. It is in these natural disaster situations that the PolicyComparison.com service really comes into its own, saving hours of precious time. I attach a summary of the findings later in this post.
Before I do, I start with a general comment about each peril and then look at the issue of where there is damage by both an insured peril, say storm and tempest and an excluded peril, if say action of the sea were to be excluded.
I would stress that while in most cases the polices exclude these perils, such exclusions are nothing new and have been around in their current format since the start of home and contents insurance in Australia, and to be fair, in most parts of the world.
Action of the Sea – High Water
Despite the fact that most home and contents policies in Australia, policies that only cover fire and theft being the exception, cover loss or damage by storm and tempest, losses caused directly or indirectly by the action of the sea are typically excluded. Some policies may offer coverage if it is caused by a Tsunami. One exclusion chosen at random reads:
When we will not pay a claim under Buildings and/or Contents cover” sections:
2. caused by or arising from:
• a rise in the level of the ocean or sea caused by a high tide, a king tide or any other movement of the sea
• a rise above the normal water level along a shore resulting from strong onshore winds and/or reduced atmospheric pressure,
Erosion, Subsidence, Landslide, Earth Movement
Again, many policies exclude loss or damage caused by these causes. Some policies do provide cover if the landslip or subsidence occurs within 72 hours of and as a direct result of storm rainwater or the like and in some cases flood, if flood is insured under the policy, but not the action of the sea.
Taking a policy that does provide some coverage the wording reads:
We will not pay for loss or damage caused by caused by:
- soil movement including erosion, landslide, mudslide or subsidence,
- shrinkage or expansion of earth or land, or
- hydrostatic pressure;
- landslide or subsidence that occurs within 72 hours of and as a direct result of storm rainwater hail snow wind earthquake explosion or liquid escaping from a fixed pipe or something attached to a pipe fixed gutter fixed tank apparatus or a drain and
- soil movement including erosion landslide mudslide or subsidence that is directly caused by and occurs within 72 hours of a flood, when flood option is taken.
This is very similar to the Action of the Sea exclusion and a similar approach is taken. That is coverage is generally unavailable under the policy, however, some Insurers may offer coverage if it is caused by a Tsunami.
I have written a great deal about flood insurance over the years. The point I wish to stress here is that the standard definition of flood reads:
The definition of flood is:
- the covering of normally dry land by water that has escaped or been released from the normal confines of:
- any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
- any reservoir, canal, or dam.
It is important to note that flood does not include flooding from the ocean or sea even when flood is an insured peril under a policy.
To save you the few seconds it takes to download the comparison, I enclose a copy of the comparison I compiled this morning on Australian Home and Contents policy wordings. Policy_Comparison generic 7 June 16
The rules around concurrent causes of loss or damage
The next thing to get our heads around is what happens when there is damage from two or more causes. This can occur with a storm blowing a roof off a building and sea water filling the basement. The building has been damaged by two causes with the basement wet from both sea water and rainwater pouring in from the open sky above due to the roof being blown off.
For the sake of our discussion there are three broad types of peril. They are:
- Insured Perils
- Uninsured Perils; and
- Excluded Perils.
Over the several hundred years of Common Law the following rules have been developed and they have been in operation, virtually unchanged for over 100 years. Dinsdale, (1960) clearly set out the way it all works in Principles and Practice of Accident Insurance, [P Buckley, London].
In summary, if an insured peril and another peril operate together and the damage can be clearly identified then the damage by the insured peril is paid by the insurer while the damage from the uninsured or excluded peril is not.
If the damage cannot be separated then where the damage has been caused by an insured peril and an uninsured peril then the insurer pays the entire amount.
If the damage cannot be separated then where the damage is caused by an insured peril and an excluded peril then the entire damage is not paid by the insurer.
And of course if the damage is not caused by an insured peril but either an uninsured and or excluded peril then the loss is not claimable.
In Australia the fact that an insurer does not have to meet a claim where there is damage and the cause cannot be separated out between an insured loss, say storm and tempest and an excluded peril, say storm surge or flood, is known as the ‘Wayne Tank Rule’ but the case to my mind did not come with any surprises but affirmed the existing position.
The rules apply to most forms of insurance, material damage, business interruption, construction risks etc.
If you would like to read more on the subject, I have written a very detailed treatise on ‘Proximate Cause’ in my book titled Manning’s Six Principles of General Insurance. A link to the book can be found at: http://www.lmigroup.com/content.aspx?artId=454
One final point. Every claim is different and this article was written with no single claim in mind and solely to assist readers have a general understanding of the issues that will arise from the recent storms around Australia. The facts of every claim have to be considered and the actual wording of the policy considered.
One word being changed from say an ‘and’ to an ‘or’ can make a huge difference on how a policy responds. All I am doing is outlining the basic principles that I use when considering a claim under any policy. It also reminds me why it takes me so long to draft a wording to ensure that it reflects the intention of the coverage.
My heart goes out to those that have suffered damage as a result of these storms and I hope that for most there will be coverage in place. We all have to accept however that not all perils are insurable or insurable at an affordable price. Risks of high water and the action of the sea are expected to increase with climate change and with very limited insurance available, the issue has to be considered seriously by anyone thinking of purchasing a property susceptible to such damage and other forms of risk management other than insurance need to be considered.