i) Introduction
The explanations given in this chapter are for general guidance only and they do not necessarily reflect the views of all Insurers or mortgage Lenders. In specific cases, reference must be made to the individual Insurer or Lender concerned.
The majority of owners have their properties insured against flood. Insurance provides them with the peace of mind that anything unexpected affecting the property that is covered by the building insurance will be repaired. Lenders, on the other hand, require properties to be covered by building insurance in order to protect their security. The basis on which the purchase money is lent is that the property will be maintained in a readily saleable condition so that if it needs to be sold, there is the best chance a sum equal to or exceeding the amount of the loan will be realised. Some Lenders require continuing proof that the property remains insured, hence the normal requirement that the insurance is arranged through the Lender or with the Lender’s approval. Premiums paid through Lenders will usually be collected by instalments by adding them to monthly mortgage repayments.
There is still an area of risk to both owners and Lenders when flood damage occurs as not all such damage is covered by buildings insurance, e.g. damage not caused by flood but which has solely arisen from:
• Poor quality building work • Inadequate materials • Inadequate design
• Failure to maintain the property reasonably
Examples of the above would include damp proof course failure and the failure of tanking. This is often expensive to repair and the lack of insurance cover may not always be understood by owners. However, these may be covered by insurance- backed warranties on new properties. In older properties such matters are maintenance issues which are not covered by an insurance policy.
ii) The insurance contract
An Insurance Policy is primarily a contract between two parties, namely:
• The Insurance Company – the Insurer
An Insurance Policy protects the Policyholder against loss or damage caused by one of the insured events. In its most simple terms, this means that the Insurer will be placing the Insured back in the same position in which they were in but for the occurrence of the insured event.
This can be done in one of three ways. Your Insurer has the option to: • Pay for the cost of repairing the damage
• Appoint someone to undertake the repairs
• If it is not possible to pay for the damage to be repaired or replaced economically then a cash settlement may be made.
While repair and redecoration may give rise to improvements, it is not the intention of the policy to pay for betterment or maintenance of the fabric of the building above and beyond that necessary to carry out reasonable repairs and redecoration following a flood. The extent of the policy cover with regard to the above will depend on individual policy wordings.
iii) The Policy excess
Almost all insurance policies apply a policy excess, which is the first amount of each claim the Insured has to pay. In the event of multiple occurrences of flooding within the same flood event the Insurers may choose to apply only one excess. This may be the case when insignificant additional damage has been caused by the subsequent event.
iv) Policy conditions and exclusions
As previously stated, the policy is a contract between two parties – the Insured and the Insurer and is renewable on an annual basis. Both parties are bound by the precise wording of the contract between them. They are entitled to rely on the wording of the contract and entitled also to the terms and conditions of that contract as appropriate. Insurers should make sure that the policy is clearly worded.
In addition, there are also ‘claims conditions’ within the contract. A failure by the Insured to comply with these conditions may entitle the Insurers to refuse to deal with the claim. The effect that the breach of any of the conditions by the Insured might have on a claim is explained in the following sections.
In a domestic situation, Insurers will seldom decline to deal with a claim due to a breach of a policy condition if that breach has been innocent in nature and not
material to the loss and does not prejudice the insurers’ position. They may, however, require a detailed explanation before a decision is reached and often such
investigations do take time. The Association of British Insurers provides guidance on this matter.
v) Prompt notification
When faced with your property having been flooded you should inform your Insurers as quickly as possible. Most Insurers accept telephone notification of claims; claim forms are rarely required these days. Insurers have designed their systems so that they may react to major catastrophes with speed and remove as much stress as possible for their customers.
When notifying your Insurer please tell them as much information as possible. Advise them of the number of occupants in the household, if there are any young children or elderly people. Make special reference to any disabilities or infirmities that may require specialist services or make normal alternative accommodation inappropriate.
vi) Non-Disclosure
The insurance contract is a contract of ‘utmost good faith’ between the parties. This means that neither party is entitled to mislead the other when entering into the contract. There is an obligation on the Insured to disclose any ‘material facts’ which would influence the Insurers’ judgement in deciding whether to accept the particular property in question as a suitable risk and if so, at what terms. This may include whether the property has a history of flooding.
The effect of withholding a material fact is quite simply that the Insurers are not aware of all the details relating to the risk in order to assess it properly, and if these details come to light, then Insurers will not only not deal with the current claim but also the policy can be rendered void.
vii) Sum Insured
The sum insured, which is the responsibility of the Insured, must reflect the cost of rebuilding the property and reinstatement of its contents. The sum insured is not based on nor does it reflect the properties market value. If it does not, Insurers may have grounds for adjusting their liability under the policy.
viii) Under insurance
Most policies provide cover to repair or rebuild a property on the basis that it is adequately insured at all times: this is known as cover on a ‘reinstatement’ basis. Insurers may wish to consider the extent of their liability under the terms of their policy when for example, the sum insured is only 50% of the amount required to reinstate the property then liability may only be accepted for 50% of the claim.
ix) Maintenance and repair
A property owner (the Insured) who has been made aware that a defect needs
repairing, or that a particular course of action needs to be followed to minimise future risks, has a responsibility to make less likely the occurrence of further damage by implementing the appropriate measures. Insurers will expect this to be done even if they neither required the relevant issue to be notified to them nor made it a condition
affect the settlement of the claim. Failure reasonably to mitigate such damage or its consequences may permit Insurers to reduce the amount they pay under the claim. x) Betterment
Where the Insured has not reasonably maintained the part of the property, which is the subject of the claim, Insurers may require a contribution from the Insured towards ‘betterment’ or improvement.
Gardens
Please note that most Insurers do not provide cover for fences, hedges, lawns, shrubs or flowers against flooding under either the buildings or contents policies. It is recommended that you refer to your policy document for your Insurers precise wording.