Covering all the home insurance bases
Think you've got the house covered?
It may pay to check the small print of your house insurance policy, and learn a bit about exactly what damage your insurer will pay claims for because a review of the home cover cases handled by the insurance ombudsman in 2013 show the shocks some homeowners get when their insurer turns down a claim.
And, while it is up to people to read and understand the policy they are buying, the cases show how some policy wording can seem to say one thing, but insurers will argue they mean something quite different, and refuse to pay a claim, or only a part of it.
Or simple errors on the part of the homeowner, and sometimes even the insurer, can undermine the cover people would otherwise have had in place.
SUM ASSURED CATASTROPHE
This case confirms concerns that many people are picking too small a sum for their home insurance cover.
The vast majority of house insurance has switched to sum assured, where the homeowner takes on the risk of deciding the maximum amount the insurer is liable to pay if their house needs rebuilding. It has been a fundamental shift of risk from insurance company to homeowner. And where the homeowner gets it wrong, they can find the money they are paid by their insurer won't be enough to rebuild their home as it was.
In the case in question, a woman arranged house insurance with a sum assured of $967,000 (excluding GST). Her house was burnt down in an arson attack, but the cost of reinstating the home was just over $1.5 million. She tried to argue that the insurer should pay professional fees and demolition costs "in addition" to the sum insured - which would have enabled her to narrow the insurance gap she found herself with - but the ombudsman found the policy did not require it.
UP TO POLICYHOLDER TO GET IT RIGHT
There are still the old-style traditional "total replacement" house insurance policies on the market, offered by the likes of FMG and Medical Assurance Society. While there's been a big focus by media on people getting their sum assured wrong, it is also possible to mess up your total replacement cover.
That happened to one woman who, in 2000, insured her 146 square metre home. The policy was cancelled six years later because of unpaid premiums.
The woman complained and got a new policy. The insurer went through its fact find again with her. The woman did not know the floor area of her home, so the insurer accessed an independent website, which indicated the floor area of the house was 110sqm. When the Christchurch earthquakes ravaged the home, the insurer offered a settlement based on a 110sqm floor area. Despite the failings on both sides, the ombudsman found the onus is on the policyholder to provide the correct information about the risk to be insured.
DON'T DELAY, OR THEY WON'T PAY
A man and his wife owned and rented out two flats. When they discovered they had been damaged, they left it more than six months before making an insurance claim. The insurer turned the claim down because the couple did not notify it "immediately" of the damage and return a claim form to it "within 30 days", so it was unable to inspect the damage in a "reasonable manner". The couple said they were told by the police not to make a claim until the police investigation had been completed. The ombudsman ruled for the insurer.
FALLING THROUGH THE CRACKS
A man made a claim to his insurer after machinery being used for roadworks had shaken his house and he had noticed cracks to its exterior. The insurer believed the cracks to be historical and declined the claim under the exclusions for gradual damage and for damage caused by cracking resulting from earth movement. The ombudsman did not believe that the policyholder had proven the damage was "sudden". The evidence suggested that the damage had happened over a period of time, rather than being due to a sudden event, as required by the policy.
Following heavy flooding in Nelson, a slip occurred at the rear of a house the owner rented out as holiday accommodation. It pushed the house off its foundations and made it uninhabitable.
The owner claimed for loss of rent, but the insurer would only pay up for the rent that would have been paid under the "confirmed bookings" made prior to the damage. It said the policy covered "the actual rent lost" not rent that might have been charged. The homeowner argued that there was no evidence to show bookings for the house would have ceased if the damage had not occurred and that the insurer should pay.
The ombudsman sided with the insurer.
In another case the owner of a Christchurch rental property, empty at the time of the earthquake which rendered it uninhabitable, found he could not claim for "lost" rent for the same reason. The ombudsman said: "The policyholder has an obligation to read the policy and the policy schedule and to check that the cover provided is in accordance with expectations."
FALLING THROUGH THE CRACKS . . . AGAIN
A man made a claim saying his concrete paths were cracked by a 5.7 earthquake. Loss adjusters were sent.
The first one agreed the damage was caused by the quake. The insurer then sent an engineer who thought it was not. The onus was on claimants to prove their claim, the ombudsman said, and as the man did not provide any expert evidence, the ombudsman relied on the evidence provided by the insurer's engineer.
HIGH AND DRY
A woman had underfloor insulation installed. Three months later she made a claim for cracking and splintering of her tongue and groove flooring. The insurer said it was "gradual damage", and outside the scope of the cover. The woman said the damage was caused by a single "sudden" event, the installation of the insulation. The ombudsman said the event may have been sudden, but the drying out was gradual, so the insurance did not apply.
A man was angry that repairs to his home after a fire were not up to standard. He wanted the insurer to pay for an expert to survey the work with a view to establishing the insurer, which had contracted the repairer, should pay to bring it up to an acceptable standard. But, as the work had got a code of compliance from the council, the ombudsman found there was no further liability on the insurer.
BEATING ABOUT THE BUSH
When a large palm tree in a man's garden blew over, taking out a section of the fence, and ending up with its bushy head on the neighbour's lawn, a man made a claim to his insurer.
The claim covered the tree's removal, for the reinstatement of the lawn, and for repair of the fence. The insurer said it would pay only to remove just enough of the palm to repair the fence, and only half of the cost of the fence, which was part-owned by the neighbour.
The policy provided cover for "sudden accidental loss" to the house, including a "fence" as well as the costs for "demolition and of removing debris" and "reasonable costs to restore or reconstruct the garden or lawn". After the ombudsman got involved, the insurer accepted it had to reinstate the lawn, and to pay for the full cost to remove the tree. But it offered to settle for only paying half the cost of repairing the fence, despite the policy covering liability for damage to other people's property. The policyholder accepted the offer.
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