‘Gradual damage’ a dampener on insurance claims

Homeowners are expected to pick up on gradual problems through regular maintenance.

When is damage not damage for insurance purposes? The answer: When it’s gradual. Many homeowners are being left frustrated when they try to make a claim and find they are not covered because the damage is deemed to have occurred over time.

Most insurance policies rule out any gradual deterioration, such as erosion by weather or rotting due to exposure to moisture.

Jimmy Higgins, executive general manager of claims at Vero, said insurers had to limit what they could offer to cover, to keep insurance affordable.

‘‘The first thing you need to remember is that insurance isn’t a maintenance contract. It’s there to help you recover from sudden, unexpected losses that you couldn’t prevent,’’ he said.

‘‘Insurers have to balance the need to provide cover for our customers, with keeping premiums affordable for as many people as possible. If insurers covered faulty installation or maintenance, insurance could become less affordable.’’

Homeowners are expected to pick up on gradual problems through their regular maintenance of the property. But an AA Insurance survey found up to a third of homeowners were not aware of the maintenance obligations placed on them, or how that could affect their cover.

Terry Jordan, from the Insurance Council, said ‘‘gradual damage’’ was a common reason that claims were declined. ‘‘It’s something they don’t understand very well, people can’t get their heads around it.’’

Insurance and Financial Services Ombudsman Karen Stevens agreed it was an area that was confusing for some customers. Her office receives frequent complaints from customers who have been turned down because the insurer cited gradual damage.

‘‘Consumers often misunderstand the cover, because policies do not define ‘sudden’ or ‘gradual’,’’ she said.

‘‘To establish what gradual means is always difficult; depending on the specific factual circumstances . . . There is no definitive timeframe you can rely on. The main issue for consumers is that they will usually discover the damage suddenly and think they have a valid claim. However, the real issue is whether the cause of the damage was sudden or gradual.

‘‘Fire, earthquake, storm and flood are examples of events that can cause sudden damage. Water leaks, on the other hand, are examples of gradual damage that cause damage over time as building materials get wetter and wetter, like a bathroom floor ‘suddenly’ developing a spongy area or a hole, due to long-term leaking waste water under the shower unit spreading under the floor.’’

A sudden burst pipe would be covered, but a slowly leaking one would not.

However, many insurers cover water damage from a leaking internal water or waste disposal pipe that a homeowner could not have been expected to see, up to a limit such as $2000 or $3000.

‘‘Say a pipe under your upstairs shower has been leaking for months, but you couldn’t see it. Then one day, you notice water stains and bulging in the ceiling below, and you realise you’ve got a problem. We know even our most house-proud customers can’t see through walls, so if you discover a hidden leak, we can help you cover the costs of the damage it caused,’’ Higgins said.

But most policies do not provide cover for the cost of locating the leak. Stevens said insurers generally would regard that as part of the pipe repair, which is excluded from cover.

In one case dealt with by Stevens’ office this year, a couple made a claim under their landlord insurance policy when their tenants discovered a leak that had caused damage to carpet and skirting boards.

A loss adjuster advised that the leak would have been occurring for at least four weeks and the claim was declined.

Their complaint against the insurer’s decision was not upheld – Stevens’ office ruled that while the discovery of the damage might have been sudden, the policy wording referred to how it was caused, not how it was found.