The Insurance & Financial Services Ombudsman has found that an insurer should not have declined a claim based on the location of an underground cable.  The cable provided electricity to the insured’s house, but the damage to the cable occurred under the neighbour’s driveway.  The insurer declined the claim on the basis that this was outside the scope of the policy because it did not occur on their property.

However, the Ombudsman found that the policy wording covered both the house and services to the house.  The electricity cable was a service to the house and the fact that the damage occurred outside of their property location was irrelevant given the wording of the policy.

Unfortunately, the insurer was still able to decline the claim because the damage caused to the cable was of a gradual nature (deterioration of the insulation of the cable allowing water to enter) and was therefore excluded from the cover because it was gradual rather than sudden.

If the cable had been damaged by something like an excavator cutting through the cable then that would have been sudden damage.  Gradual damage caused by wear and tear was not covered.

Alan Knowsley
Insurance Lawyer Wellington