Allianz has been ordered to pay a disputed claim from a business that was hit by the 2011 Queensland floods, in a decision that could have consequences for other insurers.

LMT Surgical, which is based in the Brisbane suburb of Milton, was inundated by water from the Brisbane River that backed up through two stormwater drainpipes.

Its claim under an Allianz industrial special risks policy was rejected because of a flood exclusion.

But LMT took the case to the Supreme Court of Queensland, which has directed Allianz to pay the claim and the plaintiff’s costs. Allianz is considering an appeal.

The case hinged on the policy’s definition of flood, which was: “The inundation of normally dry land by water overflowing from the normal confines of any natural watercourse or lake (whether or not altered or modified), reservoir, canal or dam.”

Allianz argued the drainpipes should be considered a canal, according to a dictionary definition of the latter as “a pipe or tube for conveying liquids”.

But Justice David Jackson says it is clear from the context this is not the correct interpretation. He says the pipes are not a modified or altered natural watercourse, nor part of the “normal confines” of the river.

“In my view the insurer’s liability to indemnify the plaintiff for the damage occasioned by inundation of the premises… was not negated by the flood exclusion.”

Allianz GM Corporate Affairs Nicholas Scofield told insuranceNEWS.com.au the company is “reviewing this judgement… with legal advisers, and will base any consideration of an appeal on the outcome”.

Industry sources say the decision could have significant consequences. The definition is widely used and features standard wording that cannot be altered by law, so insurers may have to raise premiums for premises facing similar risks.

It is also feared other policyholders could challenge rejected claims on the same basis.

The Insurance Council of Australia declined to comment on the case, saying it “is a matter for the insurer involved”.

The Financial Ombudsman Service says it considers a number of court decisions when addressing flood disputes and “this will be another legal case for us to take into account”.

“The… decision does not affect the outcome of disputes already resolved by FOS,” a spokesman told insuranceNEWS.com.au.