Perched on Mount Ararat - Insurers and insureds in the aftermath of the flood

And the heavens opened...

Recent weather volatility, primarily storms and flooding in Queensland and Victoria (including tropical cyclone Yasi), has resulted in thousands of insurance claims placing stress on insurers and insureds alike.

Many insurers may take a tough line with commercial policy flood claims and there may be significant differences depending on whether the affected property was domestic/residential or commercial/industrial. The policies are very different and divergent legal and factual disputes are likely to arise.

Much ink has already been spilt on the various implications for insurers, insureds and their advisors. Issues include event definition (whether damage was caused by flood or not), aggregation (number of insured events), loss calculation and business interruption - particularly in the absence of 'physical damage'.

In this update we will focus on business interruption as it is likely to become contentious as various claims are assessed. We will address a range of other flood related issues at our upcoming Hot Topics seminar.

Major business enterprises, for example mining operations, may be significantly affected by a loss of access and/or inability to operate by the mere presence of excess water even if not strictly resulting in physical damage to insured property. The policy wording will prove to be the key and we address how far policies extend in respect of damage to insured commercial/industrial property in the case of a deluge.

And the waters subsided...

In the aftermath of the recent Queensland natural disasters, in the context of consumer home and contents insurance policies, claims disputes are likely to revolve around how a policy's Product Disclosure Statement explained that the policy did not cover flood (if it did not, as many policies included flood cover), how the policy defined 'flood' and whether this was properly explained to the consumer at the time they bought the policy.

However, in the case of commercial, mining and industrial property, the debate is more likely to centre on whether there was actual physical damage to the Insured's property or the property of one of their suppliers or customers. If flood was excluded, an issue may also arise as to the extent to which water causing damage was in fact 'flood' water. The ensuing debate will then revolve around how the policy entitlements (if any) are to be calculated.

And Noah reviewed the surface of the ground...

The majority of business insureds in Australia are covered by property damage and business interruption insurance based upon the National Insurance Brokers Association's (NIBA) Mark IV or V Industrial Special Risks (ISR) wording as a template.[1]

Although both Mark IV and Mark V standard policy wordings exclude flood, with exclusions distinguishing between water which escapes from a natural water course and other forms...