A claimant whose home was inundated during heavy rain will be covered for his loss after the complaints authority rejected his insurer’s “broad interpretation” of an underground seepage exclusion.

The homeowner said several rooms at his property, which was slightly below street level, flooded in February 2022 when a build-up of water topped a slab in front of a waterproofed wall. He said the water then entered below the wall.

Records showed more than 700mm of rain fell in the area from February 23-27, across two significant downpours.

Insurer IAG said the damage was due to waterproofing failures in the building’s western basement and northern wall.  

Its appointed builder found water was entering under the skirtings of the building’s external wall and attributed the loss to waterproofing issues.

The insurer then applied the home policy exclusion concerning damage “caused directly by ... the subterranean seepage of water, no matter how caused”.  

The claimant appointed a consulting engineer who disagreed that waterproofing failures were the cause, saying ingress would have been a regular event if this was the issue. The property was last flooded in 2011.  

The engineer said the likely cause was extreme up-slope flooding caused by rainfall and an overflow on the western wall’s foundations, which migrated to the affected basement.  

The Australian Financial Complaints Authority says for the exclusion to apply, the insurer had to show subterranean seepage “directly caused” the claimed loss. It says the policy did not define “subterranean seepage” or “seepage”. AFCA interpreted it as the “process whereby liquid passes gradually through an area underneath the ground to cause damage”.  

The authority rejects the exclusion because the water did not pass gradually or come from “below the surface of the ground” but was due to the build-up of rainwater.  

It also rejects the insurer’s contention that “any act in which water enters [the home] through the soil” is excluded, saying this is a broad interpretation that goes against standard policy interpretation principles.  

“Here, the dominant or effective cause of the loss was the storm event,” the authority’s ombudsman said. “While it appears water flowed to the building and possibly under the soil before entering the building, this does not enliven the exclusion.

“I am further not satisfied the entry of water into the building was gradual, and therefore it was not consistent with seepage.”  

See the ruling here.