Insurance coverage for flood damage

The descriptions of the insurance policies covering buildings and contents given in this section are for general guidance only and they don't necessarily reflect the views of all insurers, lenders and other interested arties. In specific cases, reference must be made to the individual insurer r lender concerned.

fig73 Salts from dampness in the structure has led to paintwork on this basement wall losing cohesion.

Flooding will encourage this form of deterioration: moisture will rise in the fabric and the effect show as lifting paint over the affected area, from the floor up.

Buildings insurance (and contents insurance) provides the policyholder with the peace of mind that, if any unforeseen insured event affected their property and led to damage, it would be repaired and they would be reimbursed for their losses. Lenders also require properties to be covered y building insurance in order to protect their 'investment'. The basis on which the lender provides a loan to purchase property is that the borrower will undertake to maintain the property in a saleable condition so that, in he event that the borrower is unable to make repayments of the loan, the ender can repossess the property, sell it, and recover the loan. Some lenders require continuing proof that the property remains insured, hence he normal requirement that the insurance is arranged through the lender r with the lender's approval.

There is still an area of risk to both owners and lenders when flood damage occurs since not all damage is covered by buildings insurance; for example damage caused by:

• poor quality design
• poor quality materials
• poor quality building work
• failure to maintain the property in a reasonable condition

An example of damage not covered by insurance would be the failure of a damp proof course or of tanking in a basement. These are often expensive to repair and owners may not always understand that they are not covered by buildings insurance. However, they may be covered by insurance backed schemes on new properties. In older properties these are maintenance issues that are not covered by insurance policies.

The insurance contract

An insurance policy is primarily a contract between two parties, namely:

• the insurance company -- the insurer
• the policyholder and , where applicable, the lender -- the insured.

An insurance policy protects the policyholder against loss or damage caused by one or more of the insured events stated in the policy. In its most simple terms, this means that the insurer will be placing the insured in the same position they were in before the insured event.

This can be done in one of three ways. The insurer has the option to:

• pay the policyholder for the cost of repairing the damage
• appoint someone to undertake the repairs and pay them
• arrange a cash settlement with the policyholder if it's not possible to pay for the damage to be repaired economically.

While repair and redecoration may give rise to improvements, it's not the intention of the insurer to pay for 'betterment' or for 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 cover will depend on individual policy wordings.

Most insurers don't provide cover for fences, hedges, lawns, shrubs or flowers against damage by flooding, or the subsequent cleaning, under either the buildings or contents policies. The policyholder should refer to their policy document for the insurer's precise wording.

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Betterment is deemed to apply under buildings insurance where the property has not been maintained in a reasonable condition and subsequent improvement is made to the building's condition as a result of a claim being met for an insured event. The insurer will normally then adjust the amount of the claim paid to the policyholder that reflects the degree of improvement.

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The policy excess

Almost all insurance policies apply a policy excess, which is the first amount of each claim the insured has to pay. Excess amounts will vary between insurers and types of risk. In the event of multiple occurrences of flooding within the same flood event, the insurers may choose to apply only one excess.

Policy conditions and exclusions

As already stated, the policy is a contract between two parties -- the insured and the insurer, and is usually renewable on an annual basis. Both parties are bound by the precise wording of the contract between them. Each is entitled to rely on the wording of the contract. The insurer should make sure that the policy document and any attachments are clearly worded.

In addition, there are specific conditions which relate to claims made under an insurance contract. A failure by the insured to comply with these conditions may entitle the insurers to reject a claim. The effect that a breach of any of the conditions by the insured might have on a claim is explained in the following sections.

In a domestic situation, an insurer will seldom decline to deal with a claim due to a breach of a policy condition if that breach has been innocent in nature, is not material to the loss and does not prejudice the insurer's position. They may, however, require a detailed explanation before a decision is reached and often these investigations take time. The Association of Insurers provides guidance on this matter.

Prompt notification

When faced with their property having been flooded, the insured person should inform their insurer as soon as is practicable. Most insurers accept telephone notification of claims; in fact claim forms are rarely required these days, the details of claims being given over the telephone.

Insurers have designed their systems so that they can react to major catastrophes with speed and remove as much stress as possible for their clients.

When notifying the insurer, the policyholder should give as much information as possible. This includes the number of occupants in the household, if there are any young children or elderly people, and if any occupant has disabilities or infirmities that may require specialist services or make normal alternative accommodation inappropriate.

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 insurer's judgment in deciding whether to accept the particular property in question as a suitable risk, and , if so, on 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 insurer is not aware of all the details relating to the risk in order to assess it properly.

If these facts come to light, the insurer will not only not deal with the current claim but the policy may be rendered void.

Sum insured

The sum insured, which is the responsibility of the insured, must reflect the cost of rebuilding the property. The sum insured is not based on nor does it reflect the property's market value - it does not include, for example, the value of the land on which the property is sited. If the insured sum does not reflect the cost of rebuilding the whole property, the insurer may have grounds for adjusting their liability under the policy.

Most policies provide cover to repair or rebuild a property on the basis that it's adequately insured at all times: this is known as cover on a 'reinstatement' basis.

The insurer may wish to consider the extent of its liability under the terms of its 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.

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 minimize future risks, has a responsibility to repair the defect and to make less likely the occurrence of further damage. 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 of insurance. If the insured has failed to maintain the property, this could affect the settlement of the claim. Failure to mitigate damage or its consequences may permit the insurer to reduce the amount they pay on the claim.

Where the policyholder has not maintained the part of a building which is the subject of the claim in reasonable condition, the insurer may require a contribution from the policyholder that reflects any improvement to, or betterment of, the property.

Flood resilient repairs

Flood resilient repairs are repairs which lessen the impact of damage by further flooding by altering or enhancing the specification of repairs following the original flooding event. In many, but not all, cases, additional costs will be involved.

Insurers Associations (US and UK) have made it clear that the additional cost of providing flood resilient repairs does not fall on insurers, who have an obligation under the policy to deal only with the cost of standard repairs (subject to the terms and conditions of the individual policy wordings)