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When a flood isn’t: AFCA makes insurer pay

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A Townsville resident who had an IAG insurance policy that specifically excluded flood damage has been told he can claim for repair costs after 10cm of water inundated his business property.

A claim was lodged at the start of February last year after a monsoonal low catastrophically dumped around 200 cm of rain over the Townsville region in a little over a week.

The claim was denied, with IAG saying the damage was caused by flood and this was excluded from cover under the terms of the policy held by the business.

But the Australian Financial Complaints Authority (AFCA) says the insurer “did not meet its obligation to establish application of the policy exclusion” for flood, and so it could not deny the claim.

The property was saturated after the lid blew off a nearby stormwater manhole.

Over the next few days the water seeped through “capillary action” and condensation into the floorboards, making the carpet damp, while “bow waves” from passing vehicles may have also entered the property.

The business owner said the stormwater was released from the manhole after the capacity of the stormwater pipe was exceeded and it was forced off. Water was noticed being absorbed into the building of his business around two hours later.

An IAG hydrologist argued the damage was due to flooding from Ross Creek, located 500m southwest of the insured property, and Ross River, 600m south.

The definition of flood in the product disclosure statement – “the covering of normally dry land by water that has escaped or been released from the normal confines” of a lake, river, creek, reservoir, canal, dam or another natural watercourse – followed the standard definition adopted by the industry after the 2011 Brisbane floods.

The matter was decided by a panel consisting of an ombudsman who viewed the site in November, a consumer representative and an industry representative,

They determined the stormwater was not floodwater for the purposes of the policy definition.

“The panel does not accept that stormwater that has been unable to enter a river, creek or natural watercourse because that river, creek or natural watercourse is already full, is floodwater for the purposes of the policy definition,” the finding says.

Given this, “the panel is not satisfied that the insurer has met its obligation to establish the application of the policy exclusion for flood to deny the claim,” it said. “The insurer is not entitled to deny the claim as it has not established its application of the flood exclusion to the level of inundation of 100mm above the floor level at the property.”

Click here for the full AFCA ruling.