NAT: Q&A Water Damage Insurance Claims and The Excess in Strata Properties

Tyrone Shandiman, Strata Insurance Solutions

7 years ago

This article about water damage insurance claims has been supplied by Tyrone Shandiman, Strata Insurance Solutions.

Table of Contents:

QUESTION: To improve an owners corporation’s claims history, are owners corporations fixing water damage issues rather than claiming the repair on strata insurance? In what instance is this an option?

QUESTION: In a QLD unit, water from our shower leaked into a unit below due to failure in the waterproofing. Who is responsible for the damage?

QUESTION: Can the damage to adjacent units from the same insurable event be treated as one claim? If it is preferable to lodge a separate claim for each unit, would the insurance excess apply for each individual unit?

QUESTION: If our insurance company pays out our water damage insurance claim, will they put our premium up to cover their payout costs? Should we avoid making a claim and fund the repairs ourselves?

QUESTION: The body corporate’s excess for water damage to my timber floors is $10,000. Is this amount considered an “unreasonable burden”?

QUESTION: Our fridge leaked and damaged our neighbour’s flooring. They have no contents insurance so they are claiming the full amount from us. Is this covered by our insurance?

QUESTION: Why do I have to pay the excess for a claim from a common property repair?

QUESTION: A lot owner had damage to her floors caused by a shower leak. Who pays the excess and who should pay for damages?

QUESTION: A hot water valve burst and flooded my unit and destroyed my floating floorboards. The strata building insurance does not cover floorboards and I have no contents insurance. What options do I have?

QUESTION: I’m trying to claim for water ingress due to storm damage earlier this year in Sydney. Is there a clause that covers this particular claim and therefore I can request a refund for the expense?

QUESTION: My floorboards were saturated due to water damage and they all need to be replaced. Strata have said I must pay the excess on the strata insurance policy ($5,000). Is this usual practice?

QUESTION: I had a copper pipe burst in my bathroom floor. What is the building insurance claim process and what is the role of OC vs OCC in VIC?

QUESTION: Improper waterproofing resulted in a water leak in our new apartment building. The building is under warranty and the leak is being repaired by the builder. Who pays for damage to our roman blinds?

QUESTION: After a water damage insurance claim, do I have a claim on the owners corporation for the excess on my home contents policy given the fact that I sustained the loss (property damage) through common property failure?

ARTICLE: Preventing Water Damage Claims / Avoiding Water Damage Excesses

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Question: To improve an owners corporation’s claims history, are owners corporations fixing water damage issues rather than claiming the repair on strata insurance? In what instance is this an option?

Answer: Particularly where an owners corporation is trying to improve its claims history, there will be instances when an owner or owners corporation will decide it’s not commercial to lodge a claim.

Where an owners corporation is trying to improve its claims history, there may be instances when an owner or owners corporation decide it’s not commercial to lodge a claim.

Likewise, in some instances we advise some clients to refrain from making a claim when the claim is only a few hundred dollars. In this instance, there’s no benefit. It costs the insurer more to administer the claim than what they pay out.

For significant claims, it can be a commercial decision of the owners corporation whether they want to step in and pay for the repairs. There can be an argument that the owners corporation cannot pay for repairs inside a lot, so that’s another consideration concerning water damage claims.

Particularly where an owners corporation is trying to improve its claims history, there will be instances when an owner or owners corporation will decide it’s not commercial to lodge a claim.

If an owners corporation is looking to not lodge a claim, we recommend seeking advice from your insurance adviser on this.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the August 2023 edition of The NSW Strata Magazine.

Question: In a QLD unit, water from our shower leaked into a unit below due to failure in the waterproofing. Who is responsible for the damage?

We had a small amount of water from our ensuite shower leak into a unit below due to failure in the waterproofing. The water was leaking from the grout in our ensuite. It travelled between the units and leaked into a bathroom ceiling not directly below our unit. We have paid to have our ensuite shower waterproofed again and the leak is resolved.

Who is responsible to pay for the damage to the unit below? The cost is less than the insurance excess so the unit below is asking us to pay. The units are just out of building warranty and issues like this in the past were fixed by the builder. The plumber provided a report to say the damage was caused by failure of the waterproofing between the units.

Answer: Refer to your contents insurer and there may not be an excess for legal liability claims under your policy for content.

This is a really good question. ‘Who is responsible?’ basically comes down to a legal question that, in some instances, lawyers can be involve if it goes to the commissioner, and judges and so on. I’m happy to share my wisdom on this because I’ve had a number of these claims and instances and I’ve seen the outcomes of them.

First and foremost, I do just want to say that if you have landlords or contents insurance, there is a component in the policy which covers legal liability for property damage to other person’s property. You may find that even though it’s below the strata excess, it may not be below your contents insurance excess. To trigger a contents insurance claim for legal liability, the owner below must make a demand in writing to you. You should then go to your contents insurer and specifically ask them to lodge a claim under the legal liability section of the policy.

There are two arguments in favour of the owner above (where the leak originated) and the owner below that had the damaged unit.

Legal argument: The lot owner above

If you’re the owner of the apartment where the leak originated, the argument is that the leak itself was not foreseeable, it could not have been prevented by any type of prior maintenance, and your response to the leak was adequate. That is a line that you may take with the owner below in respect of this claim.

Legal argument: The lot owner below

The owner below may have a legal argument that you’ve breached the legislation. I’m going to go through section 211 of the Queensland standard module regulations Section 211 requires that the owner of a lot included in a scheme must maintain their lot in good condition. What does that mean? A reasonable person might say, ‘Well, I’ve maintained my lot in good condition. I’ve done everything possible that I could do to maintain the lot. Have I met that standard?’.

MAGOG (NO. 15) Pty Ltd v The Body Corporate for the Moroccan

Well, there’s been a case that the Queensland District Court refers to, and that particular case is MAGOG (NO. 15) Pty Ltd v The Body Corporate for the Moroccan. This was owner versus body corporate, but it can give you some understanding as to what the thresholds of maintaining in good condition can actually mean. The judge said in that case, the duty is not one to use reasonable care to maintain and keep in good repair the common property, nor one to use best endeavours to do so, nor one to take reasonable steps to do so but a strict duty to maintain and keep in repair. The duty to maintain involves an obligation to keep the thing in proper order by acts of maintenance before it falls out of condition in a state which enables it to serve its purpose for which it exists. Thus, there is an obligation not only to attend to cases where there is a malfunction, but also to take preventative maintenance measures to ensure that there not be a malfunction. As soon as the property is no longer operating effectively or at all or has fallen into disrepair, there has been a breach of this duty. So, the duty to maintain in good condition actually is very high for a lot owners.

Essentially in this case, there are two arguments to run. I think it may favour the owner of the damaged property in this instance, but if it was me, I would refer to your contents insurer and there may not be an excess for legal liability claims under your policy for content.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This post appears in Strata News #575.

Question: Can the damage to adjacent units from the same insurable event be treated as one claim? If it is preferable to lodge a separate claim for each unit, would the insurance excess apply for each individual unit?

Answer: Damage to multiple units in one claim would attract only one excess.

Insurance policies apply excesses per event (not per unit).

So in this instance, the damage to multiple units in one claim would attract only one excess.

In relation to who is responsible for the excess, regulations under the Body Corporate Management Act state that For an event affecting 2 or more lots, or 1 or more lots and common property, the body corporate is liable to pay the excess unless the body corporate decides it is reasonable in all the circumstances for the excess to be paid for by the owner of a particular lot, or to be shared between owners of particular lots, or between the owner of a lot and the body corporate, or between owners of particular lots and the body corporate.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 07 3899 5129

This post appears in Strata News #572.

Question: If our insurance company pays out our water damage insurance claim, will they put our premium up to cover their payout costs? Should we avoid making a claim and fund the repairs ourselves?

Answer: There are some instances where an owner or body corporate will decide it’s not commercially viable to lodge a claim.

The short answer is that it depends on the claim itself. What is the amount of the claim? How many other claims have you had? If it’s a one off $500 water damage claim and you haven’t had another claim in the last five years, it is unlikely to impact your claims history.

If it’s a significant claim, it is likely to affect your claims history and your premium. If you’ve had a series of claims, some insurers will not cover you. It does differ from insurer to insurer as to as to how this will apply.

Check with your insurer or broker on the specific circumstances related to your policy and the claim as well.

We do advise some lot owner and Body Corporate clients not to make a claim where it’s only a few $100 because it costs the insurer more to administer the claim than what they pay out.

When it starts to become a significant claim, it can be a commercial decision of a body corporate to step in and pay for the repairs. I think there can be an argument that the body corporate cannot pay for repairs inside a lot, so that’s also another consideration with regard to water damage claims. There are some instances where an owner or body corporate will decide it’s not commercially viable to lodge a claim particularly where a body corporate is trying to improve its claims history.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 07 3899 5129

This post appears in Strata News #527.

Question: The body corporate’s excess for water damage to my timber floors is $10,000. Is this amount considered an “unreasonable burden”?

I live in a strata title block in Queensland. The Body Corporate have an insurance policy that covers water damage to my timber floor. The excess for water damage is $10,000. A Qld Govt website states that the excess must not create an “unreasonable burden” on the owners of individual lots. I believe the excess of $10,000 for water damage imposes an “unreasonable burden”. How do I encourage the body corporate to see it this way?

Answer: Whether an excess of $10,00 would impose an “unreasonable burden” on an individual lot owner is a case by case consideration that is at the discretion of the committee.

A number of decisions about this matter have been before the body corporate commissioner. I have drawn from the below two decision in responding to this enquiry.

Cianna Gardens [2016] QBCCMCmr 553 (2 December 2016)

River Park View [2006] QBCCMCmr 29 (20 January 2006)

Various regulations under the BCCM Act state that, when putting the insurance in place, the body corporate must ensure that the arrangements for the liability for an excess under the insurance would not impose an unreasonable burden on the owners of individual lots, having regard to subsections (3)…. (3) For an event affecting only 1 lot, the owner of the lot is liable to pay the excess unless the body corporate decides it is unreasonable in all the circumstances for the owner to bear the liability.

In River Park View [2006], the commissioner stated the exercise of that discretion is not fettered, that is, it may be exercised in accordance with the concept of ‘fault’, or ‘ability to pay’ or ‘compassionate grounds’ provided that the body corporate acts reasonably in the decision to which it comes.

This is a clear demonstration that legislation provides the committee some degree of elbow room in making a decision as to who is responsible for the excess, provided they can demonstrate they are acting reasonably in making the decision. It means that the decision to accept or deny a lot owner’s request for the body corporate to pay the excess may both be considered to be reasonable decisions by the committee.

Below are some considerations for owners and the committees:

Did the body corporate have an option to consider a lower excess?

Did the body corporate have an option to consider a lower excess when obtaining quotes for the insurance renewal? In River Park View [2006], the commissioner stated The reason behind the provision is that bodies corporate may be able to obtain a cheaper premium if they agree to a bigger excess with the insurance company, and in such circumstances, it might be considered ‘unreasonable’ for one lot owner to bear the excess when the benefit of the reduced premium was for the whole body corporate.

Was the claim a result of a maintenance issue inside a lot?

Was the claim a result of a maintenance issue inside a lot? Various regulations under the BCCM Act require the owner of a lot to maintain the lot in good condition. Previous rulings before the court give guidance on what the duty to maintain actually is:

“That duty is not one to use reasonable care to maintain and keep in good repair the common property, nor one to use best endeavours to do so, nor one to take reasonable steps to do so, but a strict duty to maintain and keep in repair. The duty to maintain involves an obligation to keep the thing in proper order by acts of maintenance before it falls out of condition, in a state which enables it to serve the purpose for which it exists ……Thus the body corporate is obliged not only to attend to cases where there is a malfunction but also to take preventative measures to ensure that there not be a malfunction …..The duty extends to require remediation of defects in the original construction of the common property ……It follows that as soon as something in the common property is no longer operating effectively or at all, or has fallen into disrepair, there has been a breach of the [s 62] duty”

So to answer the question of whether an excess of $10,000 for water damage would impose an “unreasonable burden” on an individual lot owner, this is a case by case consideration that is at the discretion of the committee having consideration to all circumstances.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 07 3899 5129

This post appears in the February 2022 edition of The QLD Strata Magazine.

Question: Our fridge leaked and damaged our neighbour’s flooring. They have no contents insurance so they are claiming the full amount from us. Is this covered by our insurance?

A leak from our fridge went through the wall between our apartment and our neighbour’s apartment causing damage to their wooden floor. They have no home contents insurance so are claiming from us the full cost of replacing the floor. Can we claim anything from our strata insurance for are we liable for the whole cost?

Answer: In this instance the claim by the adjoining property is a legal liability claim for property damage to their lot.

We will work on the presumption the flooring is temporary flooring and thus not covered by strata insurance.

We recommend lot owners take out contents/landlords insurance with a reputable insurer to cover events not insured by the strata policy. The basic principle is that between the strata & contents insurance, most accidental events should be claimable under either policy.

In this instance the claim by the adjoining property is a legal liability claim for property damage to their lot.

Most contents policies will have cover for legal liability (public liability) for damage to other peoples property that the policy holder is legally liable for.

For legal liability claims, the contents insurer will indemnify the lot owner and determine whether they are liable for the damage to the adjoining lot. If so, they will make a settlement accordingly. If not, they will deny liability on behalf of the owner and provide their reasoning for the decision.

So my recommendation to the lot owner is to speak to their contents insurer and commence a claim under the public liability / legal liability section of the policy.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 07 3899 5129

This post appears in Strata News #527.

Question: Why do I have to pay the excess for a claim from a common property repair?

I live in five store building on the Gold Coast. Recently, water entered my unit through the ceiling in the hall linen cupboard. The entire linen on all shelves was saturated and all shelving was damaged.

The Body Corporate chairman arranged a plumber and it has now been 100% established the leak occurred in the concrete slab between floors. There is no question about this fact. Repairs of the slab took two days.

I contacted our management company regarding a claim to replace the damaged shelves in my linen cupboard. The Body Corporate will cover the damage and replace the shelving. They will not replace the linen. Why is this?

Even though it is 100% acknowledged this damage was due to a Body Corporate fault, I have been told I must pay the excess of $500. This doesn’t seem right.

Answer: You may be able to apply to the body corporate to pay the excess

It appears there are three considerations for this event.

Who is responsible for maintaining the burst pipe;

Who is responsible for the excess for the strata insurance claim;

Who is responsible for the damage to contents (the hall linen).

Burst Pipe

Section 20 of the Body Corporate Management Act outlines that utility infrastructure is deemed common property except for utility infrastructure that:

solely related to supplying utility services to a lot; and

within the boundaries of the lot (according to the way the boundaries of the lot are defined in the plan of subdivision under which the lot is created); and

located other than within a boundary structure for the lot.

In these instances if the pipe is not found to be within the lot or is within a boundary structure (such as a slab) the pipe is the body corporate responsibility to maintain.

Excess

In relation to excess, Queensland legalisation has the consequence that for claims affecting 1 lot only it is usually paid for by the lot owner unless the body corporate decides it is unreasonable in all the circumstances for the owner to pay the excess and for claims affecting 2 or more lots or 1 lot and common property it is usually paid for by the body corporate unless the body corporate decides it is fair for 1 lot owner to bear the cost.

Working on the presumption that the pipe is common property and the body corporate are responsible to maintain (per section 20 of the BCCM Act) – the lot owner may have grounds to suggest:

The claim effects 1 lot and common property as the claim originated from common property; or

It is unreasonable in all the circumstances for the owner to pay the excess given the damage is as a result of damage to a common property pipe.

For this reason the lot owner may be able to apply to the body corporate to pay the excess for the reasons stated above.

Damage to contents (Linen)

Damage to the linen is not as clear. The lot owner would need to demonstrate the body corporate was negligent in the maintenance of the pipe or that they were otherwise legally responsible. This may be difficult because:

the incident itself was not foreseeable and this is evident, that water damage from a pipe concealed in a slab could not be anticipated.

the incident could not have been prevented by any type of prior inspections, regular or otherwise, that the Body Corporate could have conducted.

it may be hard to demonstrate that body corporate could have done anything differently in order to have better mitigated the loss.

Whilst the standard of care imposed on the body corporate is high, it is not unlimited.

For this reason, the prospects of having the body corporate pay for damage to linen would be lower and would depend on how well the owner could demonstrate the body corporate were negligent in the maintenance of the pipe or that they were otherwise legally responsible for the replacement of the linen.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 07 3899 5129

This post appears in the October 2021 edition of The QLD Strata Magazine.

Question: A lot owner had damage to her floors caused by a shower leak. Who pays the excess and who should pay for damages?

I am one of the owners of a unit complex of 3 townhouses. Recently, one of the owners had some water damage to her floors caused by water running down the walls from the shower. An inspection showed there was no water proofing membrane installed behind the tiles in her bathroom. She has made a claim with Strata insurance.

Who pays the excess and who should pay for damages? Can you only claim insurance if a building is less than 7 years? Our building is almost 20 years old.

Answer: The policy only covers “sudden & accidental” damage.

Firstly, there is no time limitation on making a claim under strata which covers “sudden & accidental damage” – but there is a time limit on claiming under builders warranty which covers rectification of building defects and faulty workmanship.

Repairs associated with finding and fixing the membrane are therefore not covered. This can include removal of tiles and applying a membrane.

The only portion that may have some prospect of success is resultant water damage but in instances where the damage has happened over a prolonged period of time getting a claim paid can be frivolous as the policy covers “sudden & accidental” damage.

With regard to who is responsible for the excess, it is generally a matter between the owners corporation and lot owners to determine who is responsible – for claims effecting 1 lot only it is usually paid for by the lot owner unless the owners corporation decides it is fair in the circumstances for the body corporate to bear the cost.

For matters that are not covered by insurance, the owner is responsible for any repairs inside their lot.

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

This post appears in Strata News #442.

Question: A hot water valve burst and flooded my unit and destroyed my floating floorboards. The strata building insurance does not cover floorboards and I have no contents insurance. What options do I have?

I live in high rise apartment built in 2016 in Sydney.

Back in January 2020 the hot water value, which is located outside the unit in the common area, burst and water flooded 2 units, including mine.

The strata manager arrange for a contractor to remove my damaged/water soaked floorboard and dry the floor. Following, the Strata manager lodged a claim with the Strata Building Insurance to replace the floorboard in both affected units.

The claim was rejected by the Insurance company who stating the insurance does not cover floating floorboard as per the condition of the policy.

The strata manager left the issue with me to follow up with the strata building insurance company to reassess my claim, but I have been unsuccessful in getting a favourable outcome. I don’t have Content insurance, so now I have to replace the floorboard at my cost.

Can I claim my floorboard replacement cost from the owners corporation since they took out an incorrect Building insurance policy which did not covered floating floorboard ? There are ~100 Units and all have floating floorboard.

What options do I have?

Answer: We recommend clients have contents insurance to cover them for property not insured by strata.

I’m afraid there a limited options in this instance.

The Strata Management Act states that temporary wall, floor and ceiling coverings are not the responsibility of the owners corporation to insure.

It would therefore be difficult to claim against the strata manager on the grounds the insurance was not adequate.

We recommend clients have contents insurance to cover them for property not insured by strata.

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

This post appears in Strata News #432.

Question: I’m trying to claim for water ingress due to storm damage earlier this year in Sydney. Is there a clause that covers this particular claim and therefore I can request a refund for the expense?

I’m trying to claim for water ingress due to storm damage earlier this year in Sydney. The water penetrated the sliding door seals of the balcony door and flooded the carpet.

The Owners Corporation will not pay for the extraction of water from the carpet.

If we had waited for the Building Manager to attend to this the carpet would have rotted. As it was, our tenant advised that the wet carpet had started to smell.

I have had previous claims on other properties due to storm water damage paid however on this property they won’t. Has the legislation changed? Is there a clause that covers this particular claim and therefore I can request a refund for the expense?

Answer: Carpet and other temporary flooring is not required to be covered by strata insurance in accordance with section 161(4) of the Strata Management Act.

Carpet and other temporary flooring is not required to be covered by strata insurance in accordance with section 161(4) of the Strata Management Act.

Generally, owners are required to insure carpet under their landlords or owners contents insurance policy. If you have contents insurance you should contact that insurer.

The property that you are seeking to make a claim for will need to fit within the definition of insured property under the policy.

It should also be noted that the lot owner is responsible for maintenance of the inside of their lot – in this instance the damaged carpet would generally be considered the owners responsibility to maintain and not the building manager.

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

This post appears in the November 2020 edition of The NSW Strata Magazine.

Question: My floorboards were saturated due to water damage and they all need to be replaced. Strata have said I must pay the excess on the strata insurance policy ($5,000). Is this usual practice?

My Strata insurance company has accepted a claim for water damage caused by pipes in the common wall above my ground floor unit. My floorboards (not original) were saturated and buckled and all need to be replaced.

Strata have said I must pay the excess on the strata insurance policy ($5,000). Is this usual practice I wonder? I had no way to prevent the water ingress or inspect the pipes and there were no leaks in my unit.

Answer: for claims affecting one lot only it is usually paid for by the lot owner unless the owners corporation decides it is fair in the circumstances for the owners corporation to bear the cost.

New South Wales legislation is silent on who is responsible for paying an excess. In other states like Queensland the legislation provides better clarity for owners.

Our advice to clients on the question of who is responsible for the excess is that it is generally a matter between the owners corporation and lot owner to determine who is responsible – for claims affecting one lot only it is usually paid for by the lot owner unless the owners corporation decides it is fair in the circumstances for the owners corporation to bear the cost.

If the pipe that has burst solely services the lot and is within the boundary of the lot it may be more to put a case forward to the owners corporation to cover the excess than if the pipe serviced a number of lots and was not within the boundary of the lot.

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

Question: I had a copper pipe burst in my bathroom floor. What is the building insurance claim process and what is the role of OC vs OCC?

I’m a lot owner in Victoria and 4 weeks back had a common copper pipe burst in my bathroom floor slab servicing my fixtures. It’s a 1960s double brick build. I only purchased the property 4 years ago.

The leak due to the extent of water was hard to trace and the external bricks were first removed to the outside boundary wall, including an isolation valve installed so other lots could receive cold water. The plumber who chased and fixed the leak said it was the original pipe that had been placed during construction of the build. My pedestal basin had to be removed from the wall and they had to jack hammer the wall and floor of my bathroom.

Question: What is the building insurance claim process and what is the role of OC vs OCC? Who gets involved where? I feel like I’m going around in circles with no clear understanding of protocol, nor having an advocate in my corner as a lot owner in getting my bathroom fixed.

I’ve managed to get our OC to lodge a claim this week and the Broker has requested that I needed to get a quote to repair my bathroom yet I’ve not had any damaged assessed including potential water damage, nor do I have any scope of works to request a quote to repair my bathroom.

Instead, time has been spent in understanding who’s financially responsible for the burst pipe. Under the Act it states that if a common pipe services more than one lot, it’s an Owners Corporation responsibility. After an email received from the plumber saying the pipe serviced my fixtures, the OC was quick to send me an email saying it’s my responsibility and to send all invoices directly to my lot to pay which was over $2,000 without the reinstatement to the brick and my bathroom repairs. Surely if this is a building insurance claim, the OC would pay the invoices and have them reimbursed at once the claim had been finalised?

I want the repair work to be certified to building code to protect my asset. In my view they need to gut my bathroom, waterproof and retile. It’s just not a patch job to where the jack hammering needs a handy man to do a patch job. Who can I turn to for advice so I know where I stand? I feel like I’m on a merry-go-round working with a really incompetent OC, including their Broker. This shouldn’t be this difficult.

Answer: Insurers cover the cost to repair water damage but generally exclude repair costs related to fixing and finding the leak.

Water damage claims are our most contested claims with insurers because there is often a component of maintenance and also repair of water damage. Insurers cover the cost to repair water damage but generally exclude repair costs related to fixing and finding the leak, as it generally considered the lot owners or owners corporation responsibility to maintain their property and such repairs relate to general maintenance or wear and tear. The insurer has exclusions such as lack of maintenance, rust, oxidation, wear & tear, corrosion, gradual deterioration, developing flaws, building defects etc.

In this instance (and depending on the conditions in the insurers policy wording), the costs associated with fixing the leaking pipe (including the exploratory costs such as jackhammering of walls and floors), if it is caused by one of the above excluded events, are generally not covered depending on the policy.

Generally, leaks are only covered if the leak is caused from “sudden and accidental damage” such as impact damage, storm damage etc.

As to who is responsible for the costs associated with fixing the pipe it is usually a matter for the owners corporation and the strata manager is the most qualified person to advise on this. Generally, if the pipes are within the boundary of your lot and solely supply your lot it is your responsibility to maintain this property.

Consequential water damage (to insurable property) should be covered as water damage. For the water damage component of the claim, you can request the broker arrange for the insurers builder to be appointed, however, where repairs are expected to be less than $10,000, we recommend lot owners engage a local repairer/plumber to provide a quote for water damage claims as there will likely be a component that is not covered (i.e. the leak) and insurers repairers may not assist with this portion if they are engaged. Additionally, using your own builder can cost up to 30% lower than insurance repairers due to higher project management fees.

Unfortunately I believe the extent of repairs you are seeking may extend beyond what is covered by the policy as in the absolute majority of cases strata insurers cover the water damage component of a claim only.

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

This post appears in Strata News #382.

Question: Improper waterproofing resulted in a water leak in our new apartment building. The building is under warranty and the leak is being repaired by the builder. Who pays for damage to our roman blinds?

We recently bought a brand new apartment and there was a leakage from the roof due to improper waterproofing work as well as leakage from flashed walls around the terrace roof.

Since the building is only 1 and a half years old and the building construction is within warranty (6 years for the building and 7 year for water proofing of roof), the builder is repairing the leakage.

However, this defects has damaged our Roman Blinds with the stained water coming from the roof. Who is responsible to compensate for damage to the Roman Blinds?

Answer: Liability is a matter for solicitors to determine once they have been provided all relevant information.

Blinds are the lot owners responsibility to insure under contents/landlords insurance. Liability, however is another matter all together and is a matter for solicitors to determine once they have been provided all relevant information.

The options available for you are:

You can refer this to your landlords/contents insurer who will repair the blinds and if they believe there are prospects of a recovery they will pursue the responsible party on your behalf;

You can seek legal advice;

You can submit a letter of demand to the party you believe may be responsible. The letter needs to provide:
- A description of the event (with dates);
- Why you believe that party is liable for the damages;
- What compensation you are seeking and supporting evidence such as repair quotes;
- Payment details (i.e. where to send settlement)

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

This post appears in Strata News #354.

Question: After a water damage insurance claim, do I have a claim on the owners corporation for the excess on my home contents policy given the fact that I sustained the loss (property damage) through common property failure?

My apartment recently suffered internal damage as a consequence of a failure in a common property pipe. The Owners Corporation insurance policy responded to the claim and the damage to my private property was repaired.

At the initial property inspection by the insurer’s loss assessor, I was advised that the Owners Corporation policy does not cover the floor coverings in my apartment which were damaged as a direct result of the common property asset failure.

I was directed to my homeowner’s policy to make a claim. My home contents policy responded although I had to cover an excess payment of $500 under the policy.

Do I have a claim on the owners corporation for the excess on my home contents policy given the fact that I sustained the loss (property damage) through common property failure?

Answer: When lodging the claim, the owner should explain to their contents insurer why they believe the owners corporation are at fault.

This is a good question that we get asked all the time.

If the owner believes the owners corporation are at fault for the damage to their property, the recommended course of action for the owner is firstly to contact their contents insurer to lodge a claim. When lodging the claim, the owner should explain to their contents insurer why they believe the owners corporation are at fault.

The contents insurer should then lodge a claim and conduct the repairs on behalf of the owner and charge the owner an excess prior to repairs starting.

At the end of the claim, the contents insurer will determine if the owners corporation are liable. If they believe there are grounds to suggest the owners corporation are liable, the contents insurer may then pursue recovery against the owners corporation who can refer the claim to the strata insurer under the liability section of the policy.

If the contents insurer is successful in recovering costs in the absolute majority of cases contents insurers will refund the excess (the owner should check with their insurer that they will refund the excess upon recovery of the claims costs). If the contents insurer does not believe the owners corporation is liable then they will not pursue recovery and the owner will be liable for their contents excess.

Alternatively, the lot owner can seek to recover from the owners corporation directly by sending a letter of demand which outlines the circumstances around the loss, why they believe the owners corporation is liable and the amount they are seeking for reimbursement.

It should be noted that insurers are more experienced in the recovery process and therefore the owner may be better served having their contents insurer determine if the owners corporation are liable and what the recovery process should be.

With regard to the question of who is liable for the damage, this is a legal question that is specific to the circumstances of the claim and best answered by legal professionals.

It should be noted that a leak from a pipe on owners corporation property does not necessarily mean they are automatically liable. Common defences strata insurers (on behalf of the owners corporation) have is in relation to the question of “negligence” can include “the owners corporation had no prior knowledge of the leaks identified prior to being notified by the lot owner and any leak would be from an unforeseen cause with no contribution from the owners corporation.

There is no indication the owners corporation could have done anything differently in order to have better mitigated loss of the lot owner, therefore they were not negligent in their actions and therefore would not be found negligent under common law”. If the owners corporation insurer successfully defends the recovery action, as the contents insurer has not recovered the claim the owner is not refunded the excess.

Accidents happen and negligence will differ from circumstance to circumstance – owning a property is not a risk-free investment and should the lot owner ultimately incur the cost of the excess, it is part of the cost of owning a property.

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

This post appears in Strata News #259.

Preventing Water Damage Claims / Avoiding Water Damage Excesses

Water Damage claims are by far the largest source of claims for strata insurance making up 45% of all claims lodged to Strata Insurance Solutions.

Insurers are now starting to pay close attention to properties that have water damage claims, particularly properties that have a series of water damage claims. This is because it can indicate pipes, membranes, roofs and other water apparatus are starting to fail due to either coming to the end of their useful life or they were not installed correctly when the property was built.

Insurers are applying premium increases and/or higher water damage excesses to buildings with a history of water damage claims. In some instances, only one claim can mean unfavourable treatment from an insurer when the policy renews.

On the claims front, water damage claims are our most disputed source of claims as insurers have a number of exclusions which can mean they void claims for water damage. These exclusions include damage from wear and tear, faulty workmanship, building defect, gradual deterioration, building or earth movement, rust, corrosion or tree/plant roots.

The best way to avoid a declined claim or high premiums/water damage excesses is to prevent the claims from happening in the first place. We discuss our top five causes of water damage claims and measures that can be taken to avoid water damage claims, high water damage excesses and repercussions that follow.

	Failed waterproofing membranes in shower recesses Shower recesses are typically built on a suspended timber frame with a waterproofing membrane applied to prevent water from damaging the sub-floor below. A properly applied membrane has a lifespan starting from 25 years until such a time the shower membrane fails and causes damage to the sub-floor. A poorly applied membrane can start to fail within years of the shower recess being built. To minimise the chance of damage from a failed waterproofing membrane we recommend speaking to a plumber about the following measures: Bathrooms are not designed to last forever. Owners should consider renovating their bathroom every 25 years to replace tiles and waterproofing membranes; Alternatively, owners can repair damaged grout, apply new silicone seals and a spray on water membrane over tiles; If membranes are failing within the builders warranty period (usually six years from construction) due to faulty workmanship, consider applying to cover re-application of all membranes under the builders warranty insurance.
	Burst Pipes Burst pipes can cause major damage to properties particularly if the lot owner is not home to tend to the burst pipe. In a multi-storey building a burst pipe can cause extensive damage to multiple floors. We recommend speaking to a plumber about installing the following: Water sensors detect water leaks in its infancy and send an alert to your mobile or security control room if you have a monitored alarm. Water sensors are designed for high-risk appliances such as plumbed fridges, water filters, dishwashers and washing machines. Water shut-off devices constantly monitor the flow of water and operate on time-based parameters, shutting off the water at the mains once water flow reaches the pre-set time. They also have home and away modes to maximize protection when the building is unattended. When combining water sensors and shut-off devices claims can be significantly reduced as the water can be shut-off at the mains the moment the water sensor detects water, preventing any further escape of water.
	Flexible Braided Hoses Flexible Braided Hoses are becoming a growing issue for many properties and can mean an inundation of 1,500L of water per hour to a property. Flexi-hoses should last for 10 years but can fail before their warranty due to incorrect installation. We recommend the following: Regularly check flexible braided hoses that connect plumbing fixtures such as tapware and toilet cisterns to the mains water supply. Look for bulging, rust spots, fraying or kinking. As flexible braided hoses usually burst once they have come to the end of their useful life. Once out of warranty we recommend you engage a licensed plumber to replace hoses; Ensure all new hoses come with a warranty.
	Roof Leaks Leaking roofs in most cases will cause damage to the internal ceilings. In more severe cases ceilings can collapse and water can damage floors, skirting and cabinetry. The most common cause of roof leaks are from broken and slipped tiles, flashings not being installed properly, blocked gutters and iron roof screws/seals coming loose or failing. A maintenance plan should be implemented for the following: Gutters (all roofs) annually or more if needed; Iron Roofs every 5 to 10 years; Tiled roofs on smaller properties every 5 years Tiled roofs on larger properties annually
	Toilet Blocks Blocked toilets are also common source of water damage claims. Aside from water damage to property, sewerage also can cause a safety hazard to property occupiers. If you live in a multi-storey property we recommend you provide a memo or remind unit occupiers not to flush wipes, sanitary products or other foreign objects down the toilet.

Water Damage Insurance claims in a hardening Strata Insurance market

We previously provided an outlook that strata insurance premiums were on the rise. Since this advice, we have seen actual increases applied to our client’s policies in accordance with our guidance.

The major reason for the increase has been that in 2015 and 2016 the market saw premiums reduce significantly due to increased competition with the introduction of a number of new underwriting agencies entering the market and insurers fighting to keep market share. Subsequently, insurers started to see loss ratios (premium collected vs claims paid) come through their portfolio that were unsustainable as the premium collected was insufficient.

Since we provided our update, we have now started to see insurers paying specific attention to buildings with a history of water damage claims. Over the past 12 months, water damage claims made up 45% of all claims received by our clients, which suggests this is likely the highest source of claims for strata insurers.

One insurer has started to take what we believe is punitive actions against clients with a high level of water damage claims. Recently we had a client who had been with the insurer for four years and in the past twelve months had two water damage claims of approximately $2,000 each. The insurer applied a $5,000 water damage excess to the policy and loaded the premium by 20%. We believe the application of the excess was unreasonable, not only because the claims in the past 12 months were relatively minor, but also because many lot owners will likely not have a spare $5,000 available if there is a water damage claim.

When we disputed the excess increase the insurer advised us that they are now applying a $5,000 water damage excess to all buildings with a sum insured over $10,000,000 where there have been 2 or more water damage claims in the last two years irrespective of the size of the claims. Following this, we are reviewing the cost/benefit of lodging each water damage claim when they are submitted to us and where we believe it will be detrimental to the next renewal we will advise accordingly.

Why are water damage claims unattractive to insurers?

A series of water damage claims can indicate pipes, membranes, roofs & other water apparatus are starting to fail due to either coming to the end of their use life or they were not installed correctly when the property was built. Our experience is that this can be a key indicator that there are more water damage claims to come.

The insurers’ role is to ensure the terms and conditions including excess and premium collected across their portfolio returns a profit to their shareholders. Insurers “underwrite” a policy when it is incepted and at each renewal and as part of the underwriting process a claims history assessment is undertaken. Subsequently, an insurer will impose higher premiums and excesses, exclude certain covers or decline to offer a policy entirely if they do not believe their standard terms and premiums will achieve a profitable outcome.

Common Water Damage Insurance Claims

The most common cause of water damage claims we see include:

Failing membranes in shower recesses.

Leaks in a roof due to cracked or slipping roof tiles.

Pipes bursting.

Foreign objects blocking pipes.

What can owners do to minimise claims?

Many water damage insurance claims we have experienced could have been minimised if the owners took the following actions:

If you have a tiled shower recess, there will likely be a waterproofing membrane that sits underneath the tiles which stops water from damaging the sub-floor. A properly installed membrane should last up to 25 years. After this point owners should consider either applying a spray on membrane over the tiles which can cost approximately $1,000 or renovating the bathroom which includes removing the tiles and reapplying the waterproofing membrane. This advice also applies to buildings less than 25 years old that are having water damage insurance claims from failing membranes, as it may suggest that the membranes were not installed correctly for the building.

If you have a tiled roof, you should have a roofing contractor inspect your roof and replace any cracked tiles or re-align slipped tiles on a regular basis.

If your property has a history of burst pipes, consider engaging a plumber to provide advice on how to minimise such issues.

If you live in a multi-storey property, provide a memo or remind owners and tenants not to flush wipes, sanitary products or other foreign objects down the toilet.

Get in early. Water damage insurance claims will exacerbate if left unattended. The sooner the damage is fixed the lower the claim expense will be.

A strata insurance policy is designed to cover unforeseen events and insurers have a preference to insure properties that are maintained with a proactive approach over ones that aren’t. The onus to maintain a property falls in the hands of the owner and whilst an insurance policy is available to cover the unexpected as the saying goes “An ounce of prevention is worth a pound of cure” particularly in this hardening market.

Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au

This post appears in Strata News #174.

Have a question about water damage insurance claims and who pays the excess or something to add to the article? Leave a comment below.

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