Insurance provider not required to pay for additional flooding prevention...

A family home was damaged after serve flooding and needed to be rebuilt. The owners lodged a claim with their insurance provider, who accepted the claim and agreed to cover the cost of rebuilding the home.

The family believed the new house should be built to a higher floor level to prevent future flooding. If they did not do this, they were concerned that council may place a notice on the property title warning that it is a flood risk. This would have substantial financial implications for the family, specifically with regard to insurance and mortgages.

The insurance company believed it only needed to build the floor level to the minimum required to obtain building consents. This is what was specifically covered in the insurance policy.

A dispute arose as a result of this disagreement, and the case was dealt with by the Insurance and Financial Services Ombudsman Scheme. The Ombudsman considered the terms of the policy, what was required for building consent, and expert reports from both sides.

Under the policy the insurance company only needed to cover the costs that are reasonably required to rebuild the home and meet council requirements. While the higher floor level was recommended, it was not strictly required to obtain building consent at that stage.

There was no firm decision from the council that required the insurance company to cover the additional building costs. As a result, the IFSO decided that the insurance company had acted correctly in not covering the higher floor level.  

They accepted the significant impact of the potential flood risks on the family, both physical and financial, but the Ombudsman could only consider whether the insurance company had applied the terms of the policy correctly, which they decided they had.

The Ombudsman does not have the power to question the fairness of the policy, nor can they require an insurer to make payments outside the terms of the policy.

With the recent flooding around the country, such disputes may be more prevalent. It is important to always check the specific wording of an insurance policy, as a failure to do so can be costly and lead to significant complications.

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