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NZ - Floods can wreak havoc on properties

Sean Wang - Saturday, July 14, 2012

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Flash floods can wreak havoc on your property. Just ask the hundreds of Auckland property-owners who woke last week to find floodwaters lapping at their homes.

It pays to be well insured before this happens and to know what you're covered for. The "it won't happen to me" belief won't save you in the event of a flash flood.

Such floods have resulted in millions of dollars of claims in the past few years. The Nelson floods in December 2011 caused $16.8 million of damage. The Southland floods of the previous year resulted in $43.9 million of insurance claims.

Floods can cause some quite unexpected damage. During last week's deluge Dairy Flat resident Steve Jennings watched $4000 worth of gravel on his driveway wash away before his eyes in a "torrent of water". The driveway looked like a 2m-wide river and the gravel ended up in a pond at the bottom of the valley, Jennings says.

He has lodged a claim with State Insurance, which will most likely be paid. Fortunately Jennings has receipts for the gravel, which was laid two years ago. By coincidence he also has photographs of the driveway from late last year when friends were visiting.

Although not commenting on Jennings' claim directly, Denise Bailey, corporate communications manager at State Insurance, explained that land damage is excluded under home insurance policies. "If a driveway was damaged by flood, State would pay that part of the repair cost for replacing the surface materials whilst EQC would pay for the loss of land below the driveway surface."

EQC insures land for natural disasters such as earthquake and flood. Home insurance policies cover the building of the dwelling together with garages, other outbuildings, fences, garden walls, driveways, paths, patios and paving, Bailey added.

Most claims for natural flooding are paid with little drama. Insurance & Savings Ombdusman Karen Stevens says her organisation received just one complaint from 10,000 insurance claims after the 2004 Manawatu floods.

New Zealand insurance policies usually cover home owners for accidental damage from unforeseen circumstances, says Phil Snookes of Insurance Brokers Association of New Zealand (Ibanz). That is a wide catch-all definition, unlike policies in Australia and the United Kingdom, which might specifically exclude the peril of flood.

Prevention is always better than cure. Owners of properties susceptible to flooding or water damage can find ways to mitigate the risk of flood. That could involve improving drainage or even installing a pump, if appropriate.

A landlord I once interviewed made a point of finding the lowest point in the floors of laundries and bathrooms and installing a small drain. If a tenant overflowed the sinks or bath, the water escaped, averting the need to claim.

Checking water pipes for damage from time to time isn't a bad idea. More than one homeowner has suffered an internal flood thanks to rats chewing the pipes.

Another good prevention method is to avoid buying properties that are at risk of flooding. Property lawyer Tony Steindle of Steindle Williams says such natural hazard risks will show up either in a council Land Information Memorandum (LIM) or on the title of the property.

"Something you might see in a LIM report is a 100-year flood report," says Steindle. Councils also have flood plain maps available. These will give an indication if the home of your dreams is at risk of flooding. If your house is in a flood-prone area such as Thames or Kaeo, getting insurance cover may be difficult.

Flood hazards may show up on a property's title. The Building Act 2004 requires councils to advise the Registrar General of Land if a consent is granted for building works on land subject to natural hazard. An entry is then noted on the certificate of title. This can happen either at the time of subdivision or when seeking building consent, says Steindle.

Where purchasers could be tripped up is in buying a property in the hope of either extending it or converting an outbuilding into an extra room, says Steindle. Building consent may not be forthcoming - especially on an outbuilding which is in a location at greater risk of flooding than the main house.

Another issue is that the owners of properties with Section 74 notices on the title may not be able to get house insurance or EQC cover. "If your property contains a notice of this type, you are obliged to disclose this to your insurer," the Insurance Council of New Zealand says. If not, you risk having claims declined.

Insurance companies can and do put individual exclusions on policies when they become aware of a problem. This could be as a result of a claim or claims. It could simply be that something in the proposal form alerts the company to the risk.

Floods aren't just a result of natural causes. All too often "flood" claims are for gradual damage such as rot, which has occurred over a long period of time. This has been a real bugbear between the public and insurers for years and these days most household insurance policies offer a few thousand dollars of gradual damage cover.

There are policies that don't. So don't assume your policy covers gradual damage if you haven't read it. Budget policies such as NZI's basic Essence house policy often don't cover gradual damage. Yet comprehensive policies such as NZI's Echelon Home policy do cover it.

Tenanted properties may not have gradual damage cover. State's Landlord Policy, for example, excludes gradual damage. Some general house insurance policies exclude gradual damage for tenanted properties, but cover owner-occupied properties. The irony of this is that an owner-occupier is more likely to do something about a gradual leak than a tenant is and the landlord may not be aware that there is a problem.

It's worth noting that in most cases gradual damage must be caused by water that has escaped from internal pipes or a hot water cylinder. In the case of AA Insurance's HouseCover policy, which is typical, the claim will only be paid if the property owner couldn't have discovered the damage immediately and it was not "visible, noticeable or obvious". So damage caused by water seeping in from outside or over the side of a pot plant may not be covered.

Even if a claim is accepted, the insurance company may not cover repair of pipes. It might only pay to reinstate the damage.

Nor will insurance policies pay for preventative work. In a case heard by the Insurance & Savings Ombudsman last year an insurance company was found to be correct in refusing to pay for drainage work around a sleep-out following a flood. "The policy did not cover the cost of rectifying the drainage, because it was a preventative measure and not a "sudden accidental loss", Karen Stevens said in her decision.

Another policy exclusion is settling or subsidence of land, even if it is caused by flood. One homeowner whose house piles sank following heavy rain and "flooding" had her claim declined. The damage included extreme sinking, uneven gaps beneath doors and a sloping floor, but the claim was declined because subsidence was excluded on the basis that there had not been any direct damage to the house by the flood water.

People do try it on with insurance companies.

One homeowner stored house contents in a shipping container and then claimed that damage from rain entering through a rust hole was caused by a "flood".

Her claim was declined and the ombudsman agreed with the insurer's decision.

Settling claims is not always straightforward. A common problem with flood claims is where only a section of carpet is damaged. The insurer is not bound to replace the entire carpet, says Snookes. This can upset policyholders who want uniform carpet throughout the house.