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ombudsman news

issue 10

October 2001

household disasters

Complaints about household contents and buildings insurance account for just over a quarter of our caseload. In this edition of ombudsman news we look at a few of the more difficult issues that have cropped up in recent months.

floods

This is the time of year when an insurer's mind turns to floods. We are pleased to note that, to date, we have received very few cases directly relating to last year's widespread flooding. That is a tribute to the industry's efforts and reflects the positive reports in the media and elsewhere about the industry's handling of these flood claims. Of course much of the public discussion following last year's floods has concerned the availability of insurance cover, particularly where there is a history of flooding. Normally however, such matters are outside our jurisdiction and our focus is on those circumstances where a claim arises.

Meanwhile a decision by the Court of Appeal has caused us to reconsider precisely what constitutes a "flood". In Rohan Investments Ltd v Cunningham, the court held that a flood could originate from an accumulation of water that was not large, in absolute terms. Whether a particular accumulation of water amounted to a "flood" would depend, at least in part, on the size of the property affected.

One of the judges - Lord Justice Auld - went further and indicated that a flood could arise from the slow and steady build-up of water and that it was not even necessary for the ingress of water to arise from a natural phenomenon. In his opinion, "flooding may or may not result from such weather extremes [as storms and tempests]". He went on to say that "it is the water that enters and damages the property that is important, not the area or depth of flooding outside that counts".

case study - household disasters - floods

10/01
household buildings - flood - rise in water table - whether "flood".

During heavy rainfall in November 2000, Mr B's cellar filled with around four inches of water. He claimed under his household buildings insurance, which included cover for accidental damage. The insurer concluded that the damage was due to a rise in the water table and informed Mr B that this was not covered by the policy.

Mr B argued that the damage was clearly due to a "flood" and that therefore it was covered under his policy. complaint upheld Although in the past we had held that such claims were not covered, the 1998 decision by the Court of Appeal referred to above (Rohan Investments Ltd v Cunningham) indicated that they might be valid.

We considered that, as a result of this decision, the complaint should succeed. This was partly because the wider interpretation of "flood" was closer to the ordinary expectations of householders. The decision in this court case was contrary to a previous Court of Appeal ruling (Young v Sun Alliance) in 1977, but we considered Mr B was entitled to the benefit of the more favourable case.

a lot of rot

Do exclusions for wet rot and dry rot in household policies apply even when the rot is the direct result of an insured event (such as escape of water from a bath)- Much depends on how the exclusion is worded.

Although, increasingly, insurers include a general provision that excludes dry/wet rot however it has arisen, a few of these insurers do not apply the exclusion where the rot was caused directly by an insured event. From the policyholder's perspective, this is clearly a better position for insurers to adopt and we may need to consider whether it should be taken to represent good insurance practice generally. It certainly reflects a general theme of providing cover for the unexpected. For the time being, however, if the exclusion is worded and positioned in a way that makes reasonably clear the insurer's intention to exclude damage by rot - however it arises - we consider the insurer is entitled to disclaim liability for rot, even if it was caused by an escape of water or other insured event.

Of course, separate considerations apply where the rot developed as a result of an incomplete or inadequate repair of water damage caused by an insured event, where the repair was carried out on behalf of the insurer. In such cases, the insurer would be responsible for the consequences of inadequate repair, regardless of the exclusion.

case study - household disasters - rot

10/02
household buildings - exclusion for dry rot - rot discovered in course of subsidence repairs - whether exclusion applied.

Mr N's household buildings insurer agreed to repair his property when it was affected by subsidence. The property was underpinned and superstructure repairs were undertaken. However, the repairer then found rising damp and stopped work until it had been rectified. While installing a damp-proof course, workmen found widespread woodworm and dry rot.

Mr N accepted that his policy did not cover the cost of eradicating either woodworm or dry rot and he arranged for the additional work to be carried out. However, his contractor discovered that the bearer wall supporting the infected timbers along the flank side of the house had collapsed in several places.

The insurer accepted this was further subsidence damage and it paid for rebuilding the wall. But it refused to meet the cost of removing and replacing the timbers and joists, maintaining that it was not liable, even though this work was required in order to carry out the subsidence repairs. This was because the timbers and joists were affected by dry rot, which was excluded from cover.

Mr N argued that the insurer should at least pay the proportion of the costs which related to the damaged part of the wall.

complaint upheld in part
The insurer was responsible for repairing property damaged as a result of an insured peril. Had the insurer noticed the damage to the bearer wall at a different time, it would have had to remove and replace the floor in order to complete the repairs. We concluded that the fact the damage was only noticed in the course of other repairs did not affect the insurer's liability.

However, that liability was limited to the section of the floor affected by the insured damage. The insurer accepted our view that it was liable for the cost of removing and refitting the timbers adjacent to the damaged part of the bearer wall.

Mr N argued that the insurer should reimburse the full cost of removing the floor. We did not agree. It was clear that the timbers were rotten and could not be replaced. The cost of putting in new boards and joists was not covered by the policy and the insurer was not liable. Moreover, the replacement wood meant that Mr N was in a better position after the repairs than before.

a bit of damage in time...

Occasionally we see cases where, although policyholders have acted sensibly to protect their property, their preventative action has caused some damage. Insurance is obviously not there to cover deliberate damage by policyholders and policyholders must take reasonable precautions to safeguard their property. However, it seems strange that there are circumstances where policyholders may sometimes be better off allowing serious damage to take place, rather than taking steps to prevent it and ending up with an unrecoverable loss.

The following case is an example of just these circumstances. We concluded that the policyholder had acted reasonably and that, in all probability, his actions saved the insurer from a far larger claim. It was therefore reasonable to require the insurer to meet the costs of the damage.

case studies - household disasters - preventative action

10/03
household buildings - deliberate damage - damage caused deliberately to limit greater loss - whether policyholder covered for deliberate damage.

When a blocked pipe caused water to flow back up into Mr J's kitchen, he quickly called out a plumber. The plumber broke the pipe and diverted the water before it caused any damage. However, when Mr J put in a claim for reimbursement of the plumber's charges (£70.50), the insurer rejected the claim on the grounds that the policy did not include any cover for accidental damage. Damage due to escape of water was covered under the policy, but Mr J had not claimed for any damage to his property other than the broken pipe. He argued that it was only the plumber's prompt action that prevented damage from occurring.

complaint upheld

We agreed with Mr J that the plumber's actions were a direct and necessary consequence of the escape of water and were consistent with his duty under the policy to take all reasonable steps to prevent loss. The insurer did not dispute that the plumber's action had prevented considerable damage to the cupboards and floors. This damage would have been covered under the policy and could well have exceeded the cost of fracturing and repairing the pipe.

In such cases we would not consider it reasonable to require an insurer to reimburse the cost of deliberately - caused damage unless the claimant satisfied us that:

  • he had acted reasonably and in order to prevent damage which was covered under the insurance policy; and
  • the damage he was acting to prevent would cost significantly more than the damage deliberately caused.

Mr J satisfied both elements of this test and we therefore required the insurer to reimburse him for the plumber's bill.

10/04
household buildings - subsidence - preventative work - whether insurer liable for cost.

In 1997, Mr and Mrs L noticed cracking in their garage. The loss adjusters appointed by their insurer concluded that it was caused by conifer trees owned by Mr and Mrs L's neighbour - Mr G. Mr G's insurer also appointed loss adjusters. They did not think the conifers were to blame, but they recommended the removal of several other trees.

Mr and Mrs L's loss adjusters monitored the property for the next twelve months and were satisfied that it had stabilised. The couple's insurer offered to carry out repairs but, after consulting a solicitor, Mr and Mrs L rejected the offer.

Both insurers agreed that three of the conifers would be removed, the remainder kept at their existing height, and that a new fence should be constructed. Mr and Mrs L said that Mr G's insurer should pay for the work. They argued that Mr G was benefiting whereas they had been unfairly obliged to pay the £1,000 policy excess towards the cost of the work. They sought compensation for their insurer's delay of three and a half years in progressing matters and said that this, in addition to their being subjected to Mr G's ‘foul and abusive' language, had made them ill.

complaint rejected

Mr and Mrs L's insurer was not obliged to force Mr G to remove all his trees, as the couple required, nor did it have any duty to fund the legal proceedings they wished to undertake. Mr and Mrs L were unable - or unwilling - to take legal action at their own expense and had not chosen to include legal expenses cover in their insurance.

We considered that the insurer had dealt with the claim properly and was justified in deciding not to have repairs carried out until the property had stabilised.

matching sets

For many years, we have awarded compensation to customers who have referred complaints to us about "loss of match" where, for example, one part of a three-piece suite has been damaged and it has not been possible to obtain an exact replacement for the damaged item. Our typical award is 50% of the cost of replacing the undamaged items. We have applied this approach to buildings insurance as well as to contents insurance.

However this approach is not always appropriate. For example, bathroom tiles give rise to similar disputes, but we are not usually sympathetic to demands for compensation when only a few of them need to be replaced. In these cases, we will assess the claim to see what effect the loss of match has on the remaining items. If there is no substantial loss, then we are unlikely to consider that any additional compensation should be paid. Conversely, where matching is intrinsic to the value of the objects, we will make an award for full replacement.

case studies - household disasters - matching sets

10/05
household contents - exclusion for undamaged items - matching sets - clothing - business suit - whether separate "items".

Mr C bought a suit in the summer sales, which was a real bargain. Three weeks later, he accidentally leant on a bleached surface and the trousers were discoloured. He claimed under his household contents insurance and the insurer agreed to pay for a new pair of trousers. As they were not sold separately, it offered him £206, which was 40% of the cost of the suit, less the policy excess of £50.

Mr C complained that he could not replace the trousers on their own and said he was entitled to the cost of a new suit (£515). The insurer increased its offer to include a contribution of 50% of the cost of a replacement jacket, but it refused to pay the full cost of a new suit. It said the policy stated:

"We will treat an individual item of a matching set of articles or suite of furniture or sanitary fittings or other bathroom fittings as a single item."

"We will pay for damaged items but not for the other pieces of the set or suite which is not damaged."

Dissatisfied with the insurer's response, Mr C brought his complaint to us.

complaint upheld

We did not accept that the insurer should regard the suit as "a matching set of articles". The jacket and trousers could only be purchased together, so we did not agree that - individually - they were "single items". On the contrary, the two pieces were together a "single item" and we considered that settlement should be reached on that basis. The clause the insurer had relied on was not appropriate in these circumstances and we required the insurer to pay the balance of the claim, plus interest.

10/06
Fraud - household contents - damage to one part of three-piece suite - whether claim that all of suite damaged was "fraud".

Mrs M telephoned her insurer to notify it of damage to an armchair, which was part of a three-piece suite. She said that dye from her husband's trousers had stained the fabric. The insurer agreed to clean the chair, but Mrs M insisted that the whole suite would have to be cleaned, otherwise the chair would no longer match the other items in the suite.

After the insurer explained that it had no liability for the undamaged furniture, Mrs M said that all three pieces of furniture had been stained in the same way. The investigator appointed by the insurer to assess the damage reported that only one chair was stained.

The insurer then told Mrs M that it was cancelling her policy because she had "used fraud to gain a benefit". Mrs M explained that she had no intention of defrauding the insurer and had only said the other furniture was damaged because she was dissatisfied with the insurer's decision not to pay for the whole suite. The insurer sent her a tape recording of the telephone conversation in which she said all three items were stained, but she maintained she had only been joking.

complaint rejected

The insurer's tape made it clear that Mrs M had stated there was damage to all three pieces of furniture. She did not seem to be joking. Moreover, she had allowed the insurer to arrange for an investigator to visit her rather than simply arranging for the chair to be cleaned. This indicated that she was pursuing her claim that all three parts of the suite were stained and should be cleaned.

Mrs M had attempted to gain an advantage by deception and the policy terms clearly entitled the insurer to cancel the policy. We were satisfied that the insurer had treated her fairly and in accordance with the policy terms.

10/07
Household buildings - replacement - loss of match - tiles - whether policyholder entitled to compensation for loss of match in replacement of damaged tiles.

Fourteen tiles in Mr and Mrs J's bathroom were damaged. The insurer agreed to replace these tiles but refused their request to re-tile the entire room. It explained that the policy specifically excluded "the cost of replacing any undamaged item or part of any item solely because it forms part of a set, suite, or one of a number of items of similar nature, colour or design".

After the couple expressed their dissatisfaction, the insurer made an additional payment representing 50% of the cost of re-tiling the remainder of the room.

complaint rejected

The insurer had drafted its policy carefully. There was no reason why the policy should be disregarded or distorted simply because Mr and Mrs J had not appreciated that the wording might not allow them to claim for re-tiling the whole room. On the other hand, strict application of the terms would leave many householders - if not most - with a finish they would regard as unacceptable. The insurer's payment of 50% of the cost of total re-tiling was in line with our usual approach and we were satisfied it was reasonable in the circumstances of this case.

case studies - household disasters - accidental damage

10/08
household contents - accidental damage - lack of reasonable care - burden of proof.

While Mr M was touching up the paintwork on his sitting room wall, there was a knock at the front door. He put the tin of paint on a table and went to the door. As he opened it, a gust of wind blew through the house and the kitchen door swung open, letting his dog loose. The dog rushed into the sitting room and knocked into the table, tipping the tin of paint over the sofa - part of a three-piece suite.

Mr M claimed under the accidental damage section of his household insurance. The insurer rejected his claim, on the ground that he had not complied with the policy condition to take reasonable steps to prevent damage. It considered he was negligent because he had not covered the sofa before starting to paint.

However, after Mr M explained that he had not been redecorating - only touching up some marks on the wall, the insurer made an offer of £600 towards the cost of replacing the three-piece suite. Mr M refused this offer and referred the complaint to us.

complaint upheld

To prove the alleged lack of reasonable care, the insurer had to show that Mr M had been reckless. That meant proving that he had recognised there was a risk of damage but had failed to take reasonable precautions to prevent it.

There was no indication that Mr M had been reckless and we considered the insurer should meet the cost of replacing the damaged sofa. If the sofa could no longer be replaced, then the insurer should also pay 50% towards the cost of replacing the other matching parts of the suite.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.