Flood damage exclusions
It is important to remember that all insurance policies are unique and have different characteristics and exclusions. The following exclusions though, are common in most commercial insurance policies.
Most insurance policies will not cover you for flood. They will have a specific exclusion somewhere in the policy saying something like:
“We will not cover you for loss or damage due to flood. This is the covering of normally dry land by water escaping or being released from the normal confines of a watercourse, river, lake, reservoir, channel, canal or dam, whether natural or altered.”
This is different from storm or other water damage. Storm damage refers to the effect on your premises from a violent wind, including cyclones and tornadoes, thunderstorms or hail, and which may be accompanied by rain or snow. In other words, it will cover you, for example, if the storm makes a hole in your roof and lets rainwater in.
Likewise, water damage usually refers to the escape of water, or similar liquids from water mains or pipes, gutters, water tanks, fixed appliances and heating or cooling systems and so on.
Many media reports have shown what a devastating impact flooding can have on a person’s life as well as their business.
It is important to point out that you may not be told if there is a history of flooding in your area when purchasing a building or signing a lease on business premises. However, your local council, water authority or local insurance company will be able to give you this information.
If you live in a flood prone area, even if it may only be subject to flooding once every 50 to 100 years, it is important to consider taking out this type of insurance.
A small number of insurance companies offer some type of flood insurance, however you will need to do some research to find the correct policy for your circumstances, as each will include, exclude or focus on different aspects.
Some, for example, will only provide cover when a river or body of water bursts its natural banks, whilst others cover artificial rivers and dams as well as natural ones. If there are no artificial bodies of water in your vicinity you will only need the former cover.
Additionally, many policies consider flood damage to include the damage caused by rising water levels after some body of water has burst its banks as well as the damage caused by mingled flood and rain water.
Furthermore, some policies will also specifically exclude damage caused by movement of the earth as a result of flooding.
On top of this, some policies will only cover you for a specific list of events, and if that event does not occur, you are not insured.
You will need, therefore, to check the policy wording to work out what they say about:
- Storm damage
- Rainwater damage
- Flood damage
- Natural rivers, waterways, lakes etc.
- Artificial, altered or modified rivers, channels, waterways, dams etc.
- Damage caused by mingled flood and rain water
- Damage caused by earth movements
- Damage caused by defined events.
Obviously the more comprehensive the policy the greater the risk to the insurance company and the higher the cost of the policy will be to you.
Acts Of War
Most insurance policies will specifically exclude any act or risk they consider associated with war or insurrection. Frequently these include:
Nuclear Weapons – any loss, destruction, consequential loss, damage, injury, or legal liability directly or indirectly caused by or contributed to, or arising from nuclear weapons material.
War Risks – any consequence of war or warlike activities which includes invasion, act of foreign enemy, hostilities (whether war is declared or not), civil war, rebellion, revolution, insurrection, military or usurped power.
Hijacking and kidnapping – as well as bomb threats, hoax, extortion or other attempted threats.
Motor Vehicle Exclusions
Motor vehicle insurance is a complicated field of insurance, particularly since many motor vehicles are used for both business and personal reasons. The following are examples of common motor vehicle exclustions.
“We may refuse or reduce a claim if:
Modified vehicle – your vehicle has been converted or modified by someone other than the manufacturer and these conversion or modification details are not shown in your schedule. For example, if you put a high powered engine into your vehicle or lower its suspension or fit oversized wheels and tyres.
Reasonable care – you do not at all times take all reasonable care to:
- Protect your vehicle against any initial or further loss or damage (for example, if your stolen vehicle is recovered and is driveable, you must collect it as soon as possible), and
- obey any laws or regulations.
Driving under the influence – at the time of the accident or event which results in a claim your vehicle is being driven or used by any person who:
- is under the influence of alcohol or of any drug
- has a blood alcohol level in excess of the legal limit prescribed by the law applying in the State or Territory where the accident or event occurs; or
- refuses to allow police to conduct a breath or blood test for the purpose of determining the blood alcohol content.
This exclusion will not apply:
- To the extent that there are any relevant laws which make it unenforceable
- If you prove that you did not consent to your vehicle being driven or used by the person
- If you prove that you had no reason to suspect that the person driving or using your vehicle with your consent was affected by alcohol or drugs.
Unlicensed drivers – your vehicle is being driven or used by any person:
- who is not the holder of a current driver’s licence that allows the person to drive a vehicle for the purpose for which it is being used, or
- who does not comply with all conditions imposed on their licence.
This exclusion will not apply if you prove that:
- You did not consent to your vehicle being driven or used by the person, or
- You had no reason to suspect that the person driving or using your vehicle with your consent was unlicensed.
Use of vehicle – your vehicle is being driven or used other than for:
- Commercial use in connection with your business or
- Private use for social, domestic or pleasure purposes.
ommercial use and private use include:
- Use in connection with repair or servicing
- Driving of the vehicle by a prospective purchaser or motor vehicle dealer or valuer when sale of the vehicle is contemplated
- Use for unpaid learner-driver instruction
- Use for a private vehicle-pool arrangement
- Towing of a caravan, trailer or vehicle as long as it is not for payment
- Use to drive to and from work.
- Commercial use and private use do not include:
- Use as a taxi or the carrying of passengers for hire, fare or reward (other than car sharing or pooling agreements)
- Use as a courier or other use primarily for the carrying of goods for reward
- Use whilst left on hire
- Use in an underground mine or for the purpose of deep mining
- When your vehicle is driven on rails other than as cargo
- Your vehicle being driven or used in racing, pacemaking, a reliability trial, a speed or hill-climbing test or while being tested in preparation for any of these.
Excess load – your vehicle is being driven or used for the carrying of the number of passengers in excess of what, or towing or carrying a load which is heavier, or the dimensions are greater than, the law allows or the manufacturer specifies.
Unlawful purpose – your vehicle is being used for an unlawful purpose by you or by someone with your permission.
Unsafe condition – your vehicle is being driven or used while in an unroadworthy or unsafe condition. This exclusion will not apply if you prove that:
- You could not reasonably have detected the unsafe or unroadworthy condition
- the loss, damage or legal liability was not caused or contributed to by the unsafe or unroadworthy condition.”
Common Policy Exclusions
The following is a list of other general common policy exclusions:
Deliberate damage – any loss or damage caused deliberately by you, or any director, business partner, principal, or employee of yours, or with your permission.
Existing damage – any loss or damage which happens before your cover starts or which arises from an event before the period of insurance cover starts.
Confiscation, nationalisation or expropriation – any loss, damage or consequential loss due to confiscation, nationalisation or expropriation.
In other words, any loss, damage or consequential loss caused by any person or organisation who lawfully destroys or takes away your ownership or control of any property or item covered by the policy.
Contractual liability – any loss or damage in which you have entered into an agreement which excludes your right to recover from a third party or any claim for liability where you have admitted liability without your insurance companies agreement.
Nuclear risks – any loss, destruction, consequential loss, damage, injury or legal liability directly or indirectly caused by or contributed to or arising from:
- Ionising radiation or radioactive contamination from any nuclear fuel or waste which results from the burning or fission of nuclear fuel, or
- The radioactive, toxic, explosive or other dangerous properties of nuclear machinery or any part of it.
Subsidence or landslides – unless due to earthquakes or explosions.
Vermin or insect damageWear and tear, corrosion, contamination, dampness, rust, mildew, lack of maintenance, and so on.
Error in design, plan or specificationFaulty workmanship or materials
Loss of business due to labour disputes or strikes
Sonic bangs – any loss, damage or consequential loss due to pressure waves caused by aircraft or other flying objects moving at or above the speed of sound.
Please note this list of common exclusions is by no means definitive. It is a sample list of some of the more common exclusions that policyholders should be aware of.
You should at all times consult your individual policy wording and if you have any enquires, consult with your insurance company.
Common Insurance Clauses
There are a number of common insurance clauses found in insurance policies.
Your Duty Of Disclosure
The following sets out a typical duty of disclosure. This duty is a legal obligation that you have when you take out any insurance. It is therefore important that your insurance provider includes this type of information with every policy, and that you read it.
Duty of disclosure – Before you enter into a contract of general insurance with an insurer, you have a duty, under the Insurance Contracts Act 1984, to disclose to the insurer every matter that you know, or could reasonably be expected to know, is relevant to the insurer’s decision whether to accept the risk of insurance and, if so, on what terms.”
You have the same duty to disclose those matters to the insurer before you renew, extend, vary or reinstate a contract of general insurance.
Your duty, however, does not require disclosure of any matter:
That diminishes the risk to be undertaken by the insurer
Is of common knowledge
That your insurer knows or, in the ordinary course of his business, ought to know
As to which compliance with your duty is waived by the insurer.
If you fail to comply with your duty of disclosure, the insurer may be entitled to reduce their liability under the contract in respect of a claim or may cancel the contract. If your non-disclosure is fraudulent, the insurer may also have the option of voiding the contract from its beginning.
An insurance company will not insure the interests of any person other than you, unless you have notified the company in writing of such interest, and the interest has been noted in the schedule. For example, if you have a loan from a bank or any other party, you must inform your insurer of their details as an interested party in order for the cover to be extended as appropriate.
This is where another person is liable to compensate you for any loss or damage otherwise covered by the policy, but you have agreed with that person either before or after the loss or damage occurred that you would not seek to recover any monies from that person. Your insurer will not cover you under the policy for any such loss or damage.
If you have elected to insure your buildings or contents (excluding stock) for reinstatement and replacement costs, the insured amounts should represent the full replacement value at new costs. If this is not done, any claim you make for these may not be paid in full.
If you have insured your buildings or contents for indemnity, the insured amounts should be sufficient to replace, rebuild or repair the property to the same condition as it was at the time of the loss or damage.
If you have insured your gross income, you should ensure that the insured amount represents all monies paid or payable to you for goods sold, services rendered, or rental received, less the purchase price of your opening stock. If this is not done, any claim you make for these may not be paid in full.
The GST And Your Insurance
This clause only applies if you are registered for the GST.
GST has an impact on the way in which claim payments are calculated under your policy. So long as you advise them about your GST requirements, your insurer will calculate the amount of any payment made to you, taking into account your GST status.
If, for example, you receive a cash payment for the purchase of goods or services for which you are entitled to claim an input tax credit, you will only be given an amount equal to your net cost – ie your cost after claiming input tax credits.
In respect of your policy, where you are registered for GST purposes, you should calculate your sums insured or advise your insurer of your asset values or turnover in regard to your entitlement to input tax credits.
You should, therefore, consider the net amount (after all input tax credits have been taken into account) which is to be insured and calculate and advise your insurer about insured amounts, asset values or turnover on a GST exclusive basis.
If you are either wholly or partially input taxed, you are in a special category under the GST legislation, and will need to advise your insurer about your sums insured, asset values or turnover on a GST inclusive basis.
This outline of the effect of the GST on your policy is for general information only. You should not rely on this information without first seeking expert advice on the application of the GST to your particular circumstances.