Beware harsh exclusions that turn the policy into junk insurance
Over the past few years more and more claims have been brought to my attention where the client cannot believe that their claim has been denied.
The cases that I refer to are ones where the claim has been denied for faulty workmanship, faulty design or faulty products/materials and there is no write back provision for subsequent damage to the property from a peril not otherwise excluded such as fire or storm.
I have raised this issue before, but it appears that the use of the harsh exclusions which completely devalue the protection offered by the policy are on the increase. I return to this shortly. Before I do, I offer a couple of examples.
A clock radio in a home catches fire due to an internal fault. The fire destroys the home and contents. The policy contains an exclusion which states that:
We will not pay for loss or damage: ……
resulting from or caused by …. faulty products or faulty materials.
With no write back provision for the loss and damage caused by the fire, the entire claim is denied. Excluding the $25 clock radio is one thing, the right thing, but to not indemnify the insured for the loss of their home and contents from an insurable peril that has been available for over 400 years is WRONG.
The second example is a domestic carport insured under the home section of a farm pack. The carport has operated well with no visible signs of problems for nearly 40 years. In a severe storm that caused damage to other properties nearby the carport was destroyed.
The Insurer’s representative reported that the timber in the roof battens had scrunch and that this had occurred over time. As a result the insurer denied liability relying on the following exclusion:
We will not pay for loss or damage:
3. resulting from or caused by:
(c) wear, tear, rust, corrosion, depreciation or gradual deterioration;
The fact that a severe storm hit the area has been ignored. All their neighbours have had their storm claims paid, but not this Insured who is now out of pocket $40,000. (At least they still have a house to live in.)
Such exclusions are relatively new in this form. They came into being when fire and home policies introduced “accidental damage” as a peril. The exclusion was originally only applicable to that peril to avoid maintenance issues.
Over time, many policies moved from being fire and perils policies to being full ‘accidental damage’ covers and the exclusion moved to being a general exclusion across the entire policy or across an entire section of the policy.
Where there is no write back provision for resultant loss or damage from long standing insurable perils like fire and or storm, then, as I say, the policy loses a significant amount of protection and in my view should not be relied on when for around the same premium, there are policies available that provide the write back provision which I believe is interpretative.
A few final points. Clearly some insurers are using builders, ex-builders and or loss adjusters who are required to carefully look to see if this exclusion can be relied upon to avoid paying the claim.
Whether the clock radio really caused the fire or whether the dried out roof battens contributed to the destruction of the carport, I am not sure. To me the cause of the first loss was the peril of fire and with the second it was the severe storm.
For brokers, please use LMI PolicyComparison to ensure that none of the products you are recommending contain this type of exclusion, without a write back for resultant damage. Your company or cluster group badged wordings are unlikely to contain such a harsh exclusion but check none the less.
Please bear in mind that these exclusions are not just in farm and home policies but contract works, some liability policies and a raft of other policies as well.
What I have not addressed here is whether Section 46 of the Insurance Contracts Act can be used to assist the Insured. This will be the subject of an upcoming post in its own right. The question was not addressed by the insurer, builder or loss adjuster in either of these claims.
The last question I raise and would like your feedback on is:
If the peril of fire has been an insurable peril for over 400 years and storm and tempest has been included in home and contents policies as standard since the introduction of such policies in 1970’s, is having these types of exclusions with no write back provision for subsequent loss or damage an unfair contract term that ought to be struck out?
I know what these Insured’s, who have rightly lost all trust in the insurance industry, think so.