A northern rivers business owner whose property was inundated by floodwaters and heavy rain has lost an appeal against their insurer’s decision to only partially cover the damage following an Australian Financial Complaints Authority (AFCA) determination.

The complainant lodged a claim after the building was flooded during last year’s catastrophic wet weather events in Northern NSW in February and March.

The claimant said they had not been at the property during the flooding because the street had been evacuated, and they only returned to it a day after it was damaged.

IAG agreed to cover the policyholder for inundation in the garage and office area, saying that it was likely caused by stormwater runoff.

But the insurer said the rest of the home was damaged due to floodwater, which was only covered by the insured’s business insurance policy if the customer had opted in, and they had not.

An IAG-appointed hydrologist, referred to as AD, identified the garage area to be at a ground level of 1.4m Australian Height Datum (AHD), while the floor level of the home had been about 1.9m AHD.

AD noted that the lower level of the garage made it “plausible” that it could be susceptible to runoff flooding from a nearby car park that was raised above it.

The hydrologist reported that water levels from localised ponding “could have reached 1.55m AHD” while recorded gauge water levels of the nearby Richmond River, which was about 100m away from the property, were at 1.6m AHD on March 1.

AD’s report concluded that the peak level of inundation to the property was caused by flows from the Richmond River. It said that stormwater ponding could have first inundated the garage “to the depths of up to 0.15m".

The report also said that stormwater that entered through the roof had caused ceiling damage and mould growth.

The complainant said that water entered the home through drainage and plumbing, noting a “dirty water mark” inside the toilet which was much higher than the water level of the room.

AD acknowledged that it was possible for floodwaters to infiltrate the local sewage systems, which would cause wastewater to rise from the building’s waste drains, but said this would have occurred at the “same time or moments prior to floodwaters overtopping the floor level of the building”.

AD said that the possible discharge from the sewage system would have resulted in a higher flood level in the room than the rest of the home, but this would have only resulted due to the Richmond River flooding.

AFCA backed the hydrologist’s findings and said that if the wastewater did enter the home, it would have been mixed with floodwaters and classified as flood damage.

“The courts have established that once rainwater mixes with flood water, it is all considered flood water,” AFCA said.

“Where rainwater mixes with flood water and causes damage, a flood exclusion will usually apply to defeat the claim.”

The ruling said that IAG was entitled to its decision to partially decline the claim and correct to cover the initial inundation of 0.15m to the garage floor.

“The outcome is fair as flood damage is excluded under the policy and the available information shows that most likely, inundation above floor height in the house was caused by floodwater,” AFCA said.

It required the insurer to obtain a repair quote based on the scope of works it has received and allowed it to cash settle the claim based on the quote with a 10% uplift.

Click here for the ruling.