AFCA explains earth movement rulings
The Australian Financial Complaints Authority (AFCA) has explained in detail how it arrived at a spate of claim dispute resolutions related to earth movement and insurance cover.
In a recent virtual AFCA forum attended by around 350 members, ombudsman Helen Moye said earth movement was one of the most prevalent issues dealt with.
There are widespread general exclusions related to earth movement in home building and commercial building insurance, and she says those exclusions are generally very broadly worded.
Insurers must establish that the excluded factor was the “proximate cause” of the loss.
AFCA says if damage is caused by normal earth movement (such as ordinary settlement, natural erosion, or movement due to seasonal moisture variation), then earth movement is the proximate cause of the damage, and the exclusion will apply.
But if damage is caused by earth movement that itself was caused by an insured event - which could include a storm, flood, or water leaking from pipes - then the insured event is the proximate cause of the damage, and the exclusion won’t apply.
Ms Moye detailed two examples of earth movement disputes resolved by AFCA this year, and also said AFCA’s approach applies “irrespective of apparently dissenting legal judgment” in cases that have been to court.
“The important message on these points is that while case law, case examples and previous determinations might on the face of it look as if they are similar - or should lead to a similar or the same result in a new or current complaint - the devil is always in the detail,” Ms Moye said.
“There can be all sorts of nuances which can lead to different outcomes in apparently otherwise similar sets of circumstances.”
Her first example, which was issued by ombudsman Mark McCourt in January and determined in favour of the complainants, provided “a very clear and neat summary of the AFCA approach to ground movement and it highlights in particular the importance of identifying a proximate cause of loss or damage”.
In that dispute, a Victorian Supreme Court decision conflicted with the AFCA approach and Ms Moye said that illustrated “the AFCA approach should apply irrespective of apparently dissenting legal judgment”.
Homeowners had lodged a claim after they discovered cracking damage to the slab of their house which they said was caused by leaking water from an irrigation pipe, a septic tank, and a shower. This water leaked into the soil under the slab, causing it to expand and crack the slab.
IAG said a policy exclusion applied as it considered soil expansion caused by leaking water was “earth movement”.
AFCA determined earth movement was not the proximate cause of loss. Mr McCourt ruled that earth movement that caused a crack in the slab would not have occurred without prior leaking water, therefore the proximate cause of the crack was leaking water - not earth movement.
IAG was instructed to accept the claim, pay $3000 compensation and reimburse engineering report costs. Mr McCourt said many previous determinations had adopted the same approach, including cases 372240, 549791, 614456, 618531 and 673049.
In June, Ms Moye oversaw another earth movement case in which a woman held a home insurance policy with Suncorp and claimed after a heavy storm and a significant landslide at the rear of the property, which backed onto a steep riverbank and had a number of different retaining wall sections.
Suncorp declined the claim on the basis the damage was to the retaining walls, and these were specifically excluded under the insured event of storm.
There was also a general policy exclusion for earth/ground movement, including landslides, which applied except where the ground movement was specifically covered under certain insured events, including storm.
AFCA ruled Suncorp was liable because the damage was much broader than just to the excluded retaining walls, extending to the entire site where there was a potential further landslip and damage to the foundations of the property which hadn’t yet been fully investigated.
“What I found was the need to repair or reinstate the retaining walls was not because they were individually damaged, it was because they constituted part of the overall property damage,” Ms Moye said.
“The issue was that the proximate cause of the damage was not the ground movement but the storm that had caused to the ground movement.
“The point is, know what your proximate cause is. That is not necessarily the last act that occurred before the damage. Know that the proximate cause may not have been earth movement but the insured event of storm, as in this case.”