A homeowner’s water damage claim will be partially paid after a dispute over coverage for a long-running pipe leak. 

The policyholder lodged the claim in February last year after finding a “pool of water” in his laundry. 

Insurer Auto & General Services investigated and traced the leak to a pipe between the property’s bathroom and laundry walls.

It also found evidence of mould and “significant deterioration of some timber” that it said showed the leak had persisted for about 12 months.  

It completed make-safe work, replacing mould-affected wall linings with plastic sheeting, but declined the claim because the leak had begun before its insurance policy took effect in January last year. 

Auto & General’s expert noted the claimant said he “always had water issues beneath the property and never knew where [it had] come from” during 12 years living in the home.  

The policyholder said the insurer’s decision was unfair because the leak was not discovered until after the policy started.  

In a dispute ruling, the Australian Financial Complaints Authority said some damage should be covered.

"The insurer considers cover is only provided if the leak commenced during the policy period. However, I do not accept this position," the ombudsman said.

"The PDS does not specify the leak must have started during the period of insurance. The relevant consideration is the loss or damage during the policy period.

However, it says it is unclear how much damage pre-dated the policy.  

“The exchanged documents do not show a timeline of how the damage progressed from the slow leak,” the authority said.

“While the insurer’s expert says the leak must have been ongoing for 12 months or more, that means that cover has been extended for approximately one and a half months of the damage.

“There is no evidence to show whether in that last six weeks, most of the damage occurred, or very little.”  

The authority notes that, given the development of a pool of water, the wall damage “seems to have happened quickly”. But it acknowledges the insurer’s evidence indicates the issue persisted for some time.  

AFCA has disregarded the complainant’s statements on water issues beneath the house, saying there is no evidence linking this to the claimed event.  

It accepts some damage probably arose while the home was insured.  

“The policy does not fully respond to the damage and it is not fair to the insurer to require it to fully reinstate the property.

“However, it is fair in the circumstances for the insurer to cover 50% of the reinstatement costs.”  

AFCA has also addressed a complaint about Auto & General’s make-safe work. It accepts “the property in its current state looks incomplete”, but says the work was needed and has not caused damage. It rejects the policyholder’s call for compensation.  

“I accept that the insurer acted promptly to engage trades for the make-safe ... it should have clearly informed the complainant about this ... [and] about the consequences of what would happen if the claim was declined,” the authority’s ombudsman said.  

“While the insurer could have adopted better practices, I am not satisfied ... that the complainant was subjected to an unusual degree of stress through that action.”

See the ruling here.