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Flood Insurance Guide (factsheet)

This fact sheet is for information only. It is recommended that you get legal advice about your situation.

Download the printer friendly version here (PDF): Flood Insurance Guide

PART 1:  TYPES OF INSURANCE TO CONSIDER

Flood damage is covered differently depending on the types of policies you have and how you are affected:

  1. Home and contents insurance. Flood damage may not be offered at all, or may be an optional extra where you need to pay an additional premium to be covered.  Other policies will offer flood as a standard inclusion.
  2. Car insurance policies often cover flood damage under broad “accidental loss or damage” clauses
  3. Accident or Sickness policies, income protection and consumer credit insurance can also cover you under general clauses arising from sickness / illness or unemployment
  4. Life Insurance covering injury, disability and/or death. It may be stand-alone insurance through a life insurer or as part of your superannuation benefits. If you have life insurance through your super, some policies will cover you even if you are no longer employed

If you cannot remember which company you have insurance with, ring the Insurance Council of Australia on 1300 728 228. When there has been a large scale disaster event there is usually also a dedicated Catastrophe Hotline 1800 734 621. Your superannuation fund can tell you about any insurance attached to your superannuation in the event that there has been a death or severe injury resulting in disability in the family.

PART 2:  DOES MY INSURANCE POLICY COVER ME?

The first step is to contact your insurers and notify them about your claim. If you are unsure if your claim will be covered or not, you should claim and see what the insurer says. If you do not know who your insurer is ring the Insurance Council of Australia 1300 728 228 or 1800 734 621 in the event of a large scale disaster

Do not be concerned if your policy documents have been lost or destroyed, insurance companies keep records electronically and only require the policyholder’s name and address in order to process a claim. Your insurer is obligated to send you a copy and may have them available online.

One of the first things you should look for is whether you are covered for the costs of temporary accommodation. More about this is found below in Part 5: Additional Benefits under your policy.

The insurer will appoint an assessor to come to your property to assess the damage and gather information to assess whether you are covered under the policy.  This may take time during large scale disasters such as floods.  You should in the meantime:

  1. Take photographs of any damaged items and buildings and start making an inventory of your loss;
  2. Do not dispose of any items unless you have to because it is a hazard – but before you do so, make sure you document everything and try to get the insurer’s consent
  3. Take reasonable steps to minimise your loss. If you can secure your property from further loss, for example, putting a tarp over your contents if they are exposed or moving it under shelter. Try and document this with photos, invoices and evidence of any directives from council or local emergency services.

If you do not do this, the insurer may reject any claims arising out of subsequent damage because of this.

You should be mindful of your insurer’s rights to inspect your property or determine whether buildings or contents should be repaired/rebuilt/replaced and by who.  You should talk to your insurer to try and get their consent before performing works.

NOTE:   In the event of a major disaster event, some insurance companies may not expect you to itemise all of your contents if your home and everything in it has been totally destroyed – they may agree to just pay the full amount insured, particularly if the amount claimed seems reasonable for the size of the family and the size and value of the home insured.

If you are not sure what you are covered for, you should get a copy of your Product Disclosure Statement and Policy schedule and your Certificate of Insurance covering the date of the flood.

Insurance policies vary in wording from policy to policy as to the types of risks or insured events they will cover, and what events or losses are excluded. It is very important you read your policy and understand what you are covered for, this will help you in ensuring you get all of the benefits you are entitled too as well as explaining why you may not get all of your losses paid

In some cases, you may have a dispute about whether your insurer clearly informed you that you are not covered for flood.  Potential issues that arise include:

  1. Did the insurer tell you that you were covered for flood? Many insurers keep voice recordings of your conversations which you can request
  2. Whether the insurer sent the policy documents to you within the 14 day cooling off period? Many insurers keep records about when these policy documents were sent and you can request this information
  3. Is there any confusion or ambiguity in the policy wording?
  4. If you policy is taken out after 19 June 2014, new laws putting in place a standard definition of flood will apply, despite what your policy says (see Part 3 below).

If any of the above apply to you, you should get legal advice as you may be able to argue you should still be covered.

PART 3:  DOES MY POLICY COVER FLOOD?

Some insurers exclude flood cover, others treat it as an optional extra for an additional premium.  Some insurers offer it as standard.

Your certificate of insurance and product disclosure booklet should clearly state whether you are covered for flood and what limits may apply.

Even if your policy excludes flood damage, you may still have cover for storm or rainwater damage.

GOLDEN RULE: It can be difficult to work out what is covered by your policy so if you are unsure get advice from the Insurance Law Service 1300 663 464, or your private solicitor.

STORM OR RAINWATER

Most policies will cover you for “storm”, “rainwater” and “run-off”, but the exact definition of each of these words will depend on your policy wording.

It commonly includes damage resulting from rain and rainwater run-off resulting from storms, but does not extend to flood where flood is excluded.

Two examples of how these can be defined are: (Please note this is an example only, wording will vary)

EXAMPLE 1: STORM 

If loss or damage is caused by storm. (For example, hail damages your roof.)

Covered

  • violent wind, cyclone or tornado
  • rain, thunderstorm, hail or snow
  • sudden, excessive run-off of water as a direct result of a storm in your local area….

Not covered

  • … loss or damage caused by flood…

EXAMPLE 2: STORM, RAINWATER or RUN-OFF 

We will pay for loss or damage caused by storm, rainwater or run-off…

  • storm” means violent wind (including cyclones and tornadoes), thunderstorms and hail which may be accompanied by rain or snow.
  • rainwater” means rain falling naturally from the sky onto the buildings and/or ground.
  • run-off” means rainwater that has collected on or has flowed across normally dry ground or has overflowed from swimming pools or spas.

We will not pay for loss or damage caused by:..

  • flood, or
  • flood water combined with run-off and/or rainwater…

You need to check your own policy wording carefully, and get legal advice if you are unsure.

FLOOD

Insurers can write their own definition of “flood” under their policies, so cover can vary widely across different insurers.

New laws have however been introduced that require all insurers to transition to the same definition of “flood”.  This is intended to make it easier for consumers to understand and compare policies.  This standard definition of flood is:

The covering of normally dry land by water that has escaped or been released from the normal confines of any of the following:

  • a lake (whether or not it has been altered or modified);
  • a river (whether or not it has been altered or modified);
  • a creek (whether or not it has been altered or modified);
  • another natural watercourse (whether or not it has been altered or modified);
  • a reservoir;
  • a canal;
  • a dam.

Insurers have until 19 June 2014 to move to this standard definition.  Some but not all insurers have changed their policies over.  Until then, you still need to check the wording of your policy

These changes only affect certain types of insurance policies, but would include most consumer home and contents policies (so long as it was not organised through your own insurance broker who gave you financial advice and was not acting on a binder for the insurer).

WHAT CAUSED THE DAMAGE? – IF YOU DO NOT HAVE “FLOOD” COVER

It is firstly up to you to prove that you suffered damage from an event covered under your policy, such as storm.

To reject your claim, your insurer has to prove that damage was caused by flood which is excluded under the policy.

GOLDEN RULE: This can be a very technical area and expert opinions from hydrologists etc may be needed.

If your claim is rejected, ask the insurer to provide you a written rejection letter and copies of any information they are using to reject your claim, and get advice from the Insurance Law Service 1300 663 464, or your private solicitor.

You need to consider

  • Where did the water come from? What path did the water take?
  • When and how the water entered your house?
  • Did stormwater pool in a lake or river before reaching your property?
  • Was it raining when the water first entered into the property? How heavily and how long did this continue?
  • Did the inundation occur during the heaviest rainfall?
  • How far away is the river/lake/watercourse from the insured property?
  • What time did floodwaters reach the property?
  • Are there any stormwater drains close by? And if so, were these overflowing prior to the inundation?
  • Could rainwater alone have arisen to a sufficient height to cause the damage?
  • Could flood water alone have risen to a sufficient height to cause the damage?
  • Whether the water level rose in one go, increased in stages or increased at a constant and even rate?

Possible sources of information:

  • Hydrologist reports – if one is already provided by your insurer, it may be based on incorrect assumptions or be inconsistent with other reliable evidence (e.g., eyewitness reports).
  • You may seek an independent hydrology report. Please note that hydrology reports are expensive. If you do commission a hydrology report there is a risk that it may not support your case.
  • Local Council – flood history of your local area, evidence of soil drainage in your area, water flow paths, maps showing the location of watercourses and stormwater drains in your area, council commissioned hydrology reports, contour maps etc. Some local councils now include some of this information on their website.
  • Your own property survey plan – height of property, location of stormwater drains etc.
  • Eyewitness statements – but do not risk your own safety or another’s person’s safety
  • Photos and videos or other reliable records (homemade or media based) of rainwater inundating your area and/or your house.
  • Bureau of Meteorology – data from rainfall and river gauges. This information can be obtained for free from the Bureau of Meteorology’s website.
  • Local community – has anyone in your area obtained their own independent hydrologist’s report?

Some general principles which may apply:

  • If the damage was caused entirely by rainwater, your insurer may be liable under storm cover.
  • If the damage was caused entirely by flood – your insurer may not be liable if flood is excluded.
  • If both rainwater and flood water caused the damage it becomes a question of which was the dominant or proximate cause of the damage?––
  • If rainwater was the dominant cause and flood water was a minimal or insignificant part of the loss – your insurer may be liable for the whole loss
  • If flood water was the dominant cause – your insurer may not be liable. However if rainwater entered your house first and caused damage, you may be able to argue that you should be covered for the initial damage caused only by the rainwater
  • If both floodwater and rainwater were dominant causes – your insurer may not be liable since one of the dominant causes is excluded..
    • Where flood and rainwater mix together before causing the damage, your insurer may not be liable.
    • If some of the damage can be specifically attributed to stormwater/rainwater (e.g., roof damage, damage to walls or parts of the house from leaking rainwater) – your insurer may be liable

NOTE:   The above examples are a guide only. Whether or not your insurer is liable will depend on the specific coverage under the policy and what happened when the policy was taken out

PART 4:  WHAT ARE TYPICAL ISSUES TO CONSIDER IN FLOOD CLAIMS?

REPLACEMENT OR INDEMNITY COVER

If you have indemnity cover, your insurance policy will generally cover you for actual losses up to the sum/s you are insured for.  If you have this type of policy, your certificate of insurance will state what amounts you are insured for – for instance “Up to $400,000 for building, $20,000 for contents”.  There may be limitations – for instance if you choose not rebuild but sell the land, your policy could say that your insurer may only pay the value of the property.

If you have a replacement cover, your insurer should cover you for the amount it would cost to replace or repair damaged building/contents to the condition it was in just prior to the floods.

For either, you may also be entitled to other Additional Benefits under the policy, see below.

UNDERINSURANCE

Underinsurance is a problem with indemnity cover, where the amount you are insured for is not enough to cover your loss or damage. This is a major problem particularly in times of natural disasters such as floods or bushfires, as the cost to rebuild can easily rise due to the increased demand for builders and building materials.

Some insurers offer a safety net of protection, in return for you paying additional premiums, for instance: “Safety net home protection – 25% extra of the home sum insured”

Insurers are only obligated to cover you up to the amount you are insured for.  However, your insurer has a duty to clearly inform you in writing that their liability is limited to a particular amount before the contract is entered into.

The reverse side of this is over-insurance is where you are insured for more than the amount required to cover your loss or damage.  Over-insurance can be one way of creating a buffer to make sure you are fully covered.  However you need to be aware that you will not be entitled to an automatic payment of this higher sum.  The insurer is entitled to reduce your payout to the amount of your actual loss, and you will not be entitled to any refund of the higher premiums you paid because you were over-insured.

Is it the insurer’s fault that I am underinsured or over-insured?

Generally no.  When you first take out a policy and at every renewal it is your obligation to review the amount of cover the insurer is offering to ensure that it meets your needs and expectations.

A renewal statement might read:

“Each renewal, we increase your sum insured to help keep pace with inflation and consequently your premium will increase. As always, you are free to choose a sum insured level which best suits your needs and we recommend you review the amount of your cover periodically, particularly if you have made changes to your assets.”

  • If you are not satisfied with the amount of cover you are offered, you can negotiate with your insurer or shop around other insurers
  • The General Insurance Ombudsman (Financial Ombudsman Service) has made determinations saying that, “it would be unreasonable for a policyholder to treat an insurer as a home valuation provider.” (Determination Referral No: 103 05 17370)
  • If you feel you have been clearly misled by your insurer into getting too little or too much insurance get legal advice.

CASH SETTLEMENT OR REPAIR/REPLACEMENT

Often the insurer is entitled to make the decision as to whether to repair, replace or cash settle a claim. Sometimes they may ask you how you would prefer to settle, and you can try to negotiate

Look for something like this in your policy:

“We will decide how we settle your claim if your contents or valuable items suffer loss or damage, we will decide whether to

  • Repair an item
  • Replace an item, or
  • Pay you the cost to repair or replace the item.”

You should also take the following into account in negotiations:

If an insurer chooses to repair or rebuild, the insurer is responsible for work.  This is provided under the General Insurance Code of Practice, which states that where your insurer has selected and directly authorised a repairer, they will:

  • accept responsibility for the quality of workmanship and materials (clause 7.20a); and
  • handle any complaint about the quality and timeliness of the work or conduct of the repairer (clause 7.20b).

Some policies will go further and provide for instance a “Lifetime Guarantee of Repairs

If you agree to a cash settlement and engage your own repairer, any issues arising from the quality of repair will be an issue for you to sort out with your own repairer.

  1. Sometimes insurers tender jobs in a competitive environment after a disaster. If you elect to take a cash settlement the insurer may only offer you a cash settlement based on the lowest tender they received. You need to think carefully, and get your own advice and quotes, to decide whether this sum will be enough before you agree to a final amount
  2. Most insurers will have clauses about the standard of cover – for instance, matching of materials with what you had before, or “new for old”. Usually “new for old” has its own definition under the policy.  You should read your policy to see what level of cover you have and the extent the insurer has to try and source the same materials you had before the event.
  3. You need to be clear on what you are settling, if it is the whole claim or only part of it eg. contents. You may have “Additional Benefits” on top of the amounts you are insured for building and contents.
  4. In contents claims, the insurer may pay your claim not in cash but in store credit. The insurer may be able to do this if there is an express right to settle in the terms of the policy that they can pay your contents claims in this way. If you are not happy with store credit check your policy wording.

If the policy is silent on a store credit you could ask for cash as an alternative. However, you should be aware that the insurer may reduce your cash settlement to a lower amount than the stated value of the store credit. This may be because the insurer has an arrangement with one retailer (such as a volume discount) which enables them to pay less for the credit than the dollar amount you are able to spend. Many insurance policies allow insurers to only indemnify you as to the cost the insurer would have to replace the item rather than the retail value. Policies vary so get advice if you are not happy with the arrangement and the policy is unclear.

SETTLEMENT AGREEMENTS

You need to be very careful about accepting a settlement agreement.

Before accepting a settlement, you should:

  1. Read the policy, understand what you are entitled to
  2. Get your own quotes to make sure the amount being offered is fair and realistic. Quotes that the insurance company obtains may not be the actual cost to you to repair/rebuild/replace
  3. Get your own experts to give you advice about what works are required and how work should be performed. Your insurer may present you with a “scope of works” outlining what repairs or rebuilding they will do for you, or what they are paying you for.  You should consider having your own builder or engineer review this for you to make sure it is appropriate and comprehensive
  4. Be very clear about what you are settling – the whole claim including all additional benefits, or just a component of the claim
  5. Get legal advice. Once the claim is settled, you may be prevented from asking anything further from the insurer. This will vary on a case by case basis and on the wording of the settlement.

MORTGAGED HOMES

If you have a mortgage over your home that has been damaged or destroyed the insurer may pay the amount of your claim directly to your home lender. In this case you will need to negotiate with your lender about the release of the funds for rebuilding or repair. If there is a problem with this process you should get advice about your options.

PART 5:  ADDITIONAL BENEFITS UNDER YOUR POLICY

There may be additional benefits under your home building and/or contents policy which may cover you for emergency/alternative accommodation, removal of debris and demolition, architects, surveyor and legal fees etc.

These additional benefits can be in addition to your sum insured. Therefore, before agreeing to any settlement of your claim, it is important that you check to see if you are entitled to more than your sum insured through the existence of additional benefits cover.

EMERGENCY/TEMPORARY ACCOMMODATION

If you can no longer live in your house, you should contact your insurer and check your policy to see whether you have temporary accommodation entitlements and for how long.

An example of a clause to look out for to determine whether or not you are covered for temporary accommodation is:

“We [the insurer] will pay the reasonable costs incurred by you for comparable accommodation for up to 12 months while your building is being rebuilt or repaired.”

If you have been relocated to emergency “community” accommodation, it is also worth contacting your insurer to determine whether you are eligible for emergency “private” accommodation. If you live in a remote area, there may be no private accommodation available. Contact your insurer to determine what is likely to happen in such cases.

THINGS TO CHECK FOR IN YOUR POLICY

In relation to temporary/emergency accommodation, insurance policies vary. Examples include:

  • Specifically stating a percentage (e.g. 10%) of the value of the policy for which your insurer will cover you for in relation to temporary/emergency accommodation;
  • Providing for a specific time period within which you will be able to claim in relation to such emergency accommodation;
  • Providing for a “reasonable time”;
  • Providing that your insurer will pay for “reasonable costs”

DEMOLITION AND/OR REMOVAL OF DEBRIS

The costs to remove such debris from your property and clear your land can be significant.

You need to carefully check what types of “debris” is covered.  For instance, debris from trees, shrubs and plants may not considered “debris” under the policy. This exclusion may be done through a series of clauses. Make sure you look out for these.

You might think you are covered for all types of debris when you read a clause such as the following:

“When the buildings and/or contents have been destroyed or damaged by any of the insured events covered by your policy, we will pay the reasonable cost of: Demolition and Removing buildings and contents debris from your risk address”

However, if you see any clauses in your contact such as the following you will know you are not covered for trees and shrubs debris.

“What are not buildings: The following items are not buildings:

  • Landscaping, trees, shrubs and plants;

What are not contents: The following items are not covered by this policy:

  • Trees, shrubs, plants growing outdoors in the ground”

The above policy only covers the removal of debris to “buildings or its contents”, and because “trees, shrubs and plants” aren’t considered buildings or its contents, the removal of damaged trees and plants are not covered by the policy.

Reading a policy can be difficult, and you should contact us for specific advice if you need assistance.

ARCHITECTS, SURVEYORS AND LEGAL FEES

Most home building insurance policies provide additional cover for the costs of the services of architects, surveyors and legal fees in rebuilding and/or repairing damage to buildings.

If you are unsure whether you are covered for these, check to see if you have a clause in your policy similar to the following:

“We will pay the reasonable costs of architects, surveyors and legal fees when damage or loss occurs. We will pay up to 10% of your buildings sum insured.”

COSTS OF COMPLYING WITH NEW REGULATIONS

After significant event like floods, sometimes local councils will impose new regulations and safety standards for at risk areas. New regulations may also have been introduced since your home was initially built, for example slab heights.

Whether you are covered for these costs depends on your policy.  An example of a clause to look out for is:

“We will also pay any additional costs required for your buildings to comply with government or local authority by-laws.”

It is likely that you will be covered for additional compliance costs if your policy is to replace your property “as new” or if you have “total replacement cover”.

PART 6:  THE CLAIMS HANDLING PROCESS – WHAT HAPPENS AFTER I LODGE A CLAIM?

After you lodge the claim, the insurer will send out an assessor and possibly builders or engineers to inspect your property and help determine whether you claim is covered.

There are guideline timeframes insurers should follow in how long the claims process should take.  This is outlined in the General Insurance Code of Practice.

Generally the insurer should make a decision on your claim within a maximum of four months, unless exceptional circumstances apply. Exceptional circumstances include where there has been an extraordinary catastrophe or disaster declared by the Board of the Insurance Council of Australia. In these circumstances the maximum time to make a decision on a claim is 12 months, but you can make a complaint to the Financial Ombudsman Service Australia at any time if you are dissatisfied with the progress of your claim.

URGENT FINANCIAL NEED

This Code also obliges your insurer to fast-track your claim if you are in urgent financial need and to make an advance payment within 5 business days of you satisfactorily demonstrating your urgent financial need. Any advance payment will be deducted from the total value of your claim.

RESPONDING TO CATASTROPHES AND DISASTERS, AND REOPENING SETTLEMENTS

In disaster cases such as bushfires and floods:

  1. Your insurer must respond to catastrophes and disasters in a fast, professional and practical way and in a compassionate manner.
  2. If you have a property claim resulting from a catastrophe or disaster and your insurer has finalised your claim within one month of the catastrophe or disaster, you can request a review of your claim if you think the assessment of your loss was not complete or accurate, even though you may have signed a release. Your insurer will give you six months from the finalisation of your claim to ask for a review of your claim. Your insurer will inform you of:..
  • This entitlement when they finalise your claim; and
  • Their complaints handling procedures.

PART 7: WHAT CAN I DO IF MY CLAIM IS REFUSED, OR IF THE CLAIM IS TAKING TOO LONG?  HOW CAN I RAISE A COMPLAINT?

You can raise a dispute with the insurer’s internal dispute resolution department (“IDR”).  You can find the contact details by searching:Member Search

If your complaint is still unresolved, you can lodge a dispute with the Financial Ombudsman Service Australia (www.fos.org.au, 1800 367 287 or 1800 FOS AUS).  FOS is a free and independent dispute resolution service.  FOS cannot give you legal advice (see below for services that can).

You should gather as much evidence as you can and provide copies to your insurer.  If your insurer is relying on expert evidence, you should consider obtaining your own independent expert report to support your dispute.

You can also consider court proceedings, however you should speak to a private solicitor for advice first as court is risky and you may be made responsible for the insurer’s legal costs.

PART 8: GETTING LEGAL ADVICE

GOLDEN RULE: It can be difficult to work out what is covered by your policy so if you are unsure, get legal advice.

You can call the Insurance Law Service on 1300 663 464 from Mondays to Fridays 9:30am to 4:30pm, Eastern Daylight Savings Time

You can also contact us through our website inquiry form available at  www.insurancelaw.org.au

Before calling, please have a read of our factsheets first, as these may answer your question:

Other legal services that may be able to assist are:

  1. Legal Aid in your state
  2. LawAccess 1300 888 529 (in NSW only)
  3. Private Solicitor – contact your local Law Society for a referral
  4. If you are a tenant affected by the floods either from having your possessions damaged or your rental property damaged or destroyed, please contact a Tenants Union in your state or territory for tenancy advice. NSW residents may contact Law Access on 1300 888 529 for a referral to your nearest Tenants Union
  5. Insurance Council catastrophe hotline: 1800 734 621

PART 9: KEEPING ON TOP OF FINANCES

DO YOU HAVE A MORTGAGE OR OTHER LOANS?

You should contact your lender immediately to ask for hardship assistance.  This is most commonly provided in the form of reduced or postponed repayments, usually for 3 to 6 months at a time.

When catastrophes happen, some lenders may offer even more generous assistance and you should explore that avenue as well.

If you do not do anything, not paying your loan/s pending the outcome of an insurance claim will result in additional interest and enforcement fees being added to your loan and may result in legal action.

DO YOU HAVE OTHER DEBTS – WATER, RATES, ELECTRICITY, PHONE BILLS?

All utility companies and telecommunications companies have hardship policies, and can provide assistance by reducing or postponing your repayments. If you are experiencing difficulties negotiating with your provider you can contact the Telecommunications Industry Ombudsman on 1800 062 058 or www.tio.com.au for telecommunications or the Energy & Water Ombudsman in your state.

GENERAL FINANCIAL COUNSELLING AND/OR LEGAL ADVICE

If you are having problems reaching an agreement with your lender, you can contact the Credit and Debt Hotline on 1800 007 007 for financial counselling and/or legal advice, or a referral to your nearest face to face financial counsellor and community organisations and charities that can provide assistance including food and emergency accommodations

There are also services such as the No-interest loans scheme (NILS) which can provide loans to low income earners on an interest free basis to pay for essential household items such as whitegoods.

PART 10: OTHER RELEVANT ORGANISATIONS

Contact other relevant organisations:

  • FACS on 1300 HOUSING (1300 468 746) – evacuation centres
  • Insurance Council of Australia on 1300 728 228 or insurancecouncil.com.au

NEED SOME MORE HELP?

See Fact Sheet: Getting Help for a list of additional resources.

Last Updated: February 2017