Strata Community Insurance Agencies must pay a policyholder over costs related to a leaking pipe after a dispute ruling rejected the application of a wear and tear exclusion.

The complainant lodged the claim under their residential strata policy, seeking a payout for damage caused by the leak, and replacement and excess water usage costs.

The insured referred to a service report from a plumber, referred to as LPC, who inspected and replaced the damaged pipe. Although the report did not determine the cause of the leak, LPC agreed it had been “sudden and unexpected”.

Strata Community Insurance Agencies rejected the claim after relying on a report from an expert, referred to as TW, who said the loss was caused by long-term deterioration and oxidation of the pipe. TW noted the plumber did not provide a reason for the pinhole leak or include information about whether the pipe was lagged, the pipe’s thickness or the compliance of its trenches.

But the Australian Financial Complaints Authority has questioned the relevance of TW’s comments on thickness and trenches, saying the claim hinges on whether the loss resulted from a sudden and accidental event. It says TW’s report was “flawed” and incorrectly assumed there was no sharp increase in water consumption before the loss.

The authority acknowledges there was evidence of oxidation on the pipe, but disagrees it was shown to be the effective cause of the leak.

The ruling accepts that LPC probably provided a more accurate assessment of the loss because they had worked on the pipe, whereas TW relied on photographs from the service report.

“While the photograph shows signs of oxidation, it does not show that other than for the leaking section, the pipe was so deteriorated that it required replacement,” the ruling says.

“I do not accept that the report from TW or submissions from the insurer are sufficient to establish the application of the exclusion.”

The decision requires the insurer to pay the complainant $10,933 for the cost of locating the pipe, $1000 to replace it, $2000 for water usage expenses, and interest on the settlement sum from the date the claim was denied.

See the ruling here.