'Sudden and unexpected': insurer liable for property damage after quake event

The Australian Financial Complaints Authority (AFCA) has ruled an insurer must indemnify a claim for damage to a townhouse after a 5.9-magnitude earthquake struck in September 2021, as the loss fell within the policy’s definition of “damage”.

QBE Insurance had declined the claim on grounds that the damage was not caused by an earthquake and is therefore not covered under the terms of the strata insurance policy that was issued to the complainant.

But AFCA says the product disclosure statement describes “damage or damaged” as any partial or total “accidental physical loss of, or destruction of property from any sudden and accidental cause” not otherwise excluded by the policy.

It says the complainant, who owns two units in the townhouse complex but was only making a claim for one of the damaged properties, only needs to show there was a “sudden and unexpected” cause of the damage.

To support his claim, the complainant obtained expert reports from two builders. He also provided a copy of a routine inspection report from July 2021, prior to the earthquake, that detailed none of the subsequently claimed and observed damage.

He also relied on the report of the tenant who was renting the place at the time of the earthquake. According to the tenant, internal structural cracks were noticed immediately after the earthquake event and the kitchen floor had dropped slightly.

“It is not incumbent on the complainant to show the loss was caused by the earthquake,” AFCA says in the ruling. “He only needs to show there was a sudden and unexpected cause of the damage.”

AFCA says “something happened to cause damage to the home” and based on the tenant’s account, this occurred after the inspection and likely around the time of the earthquake.

“This event caused damage to the floor and the interior walls of the townhouse. The damage is sufficient to establish an insured event under the terms of the policy,” AFCA says.

QBE had considered the claimed damage was likely present prior to the event and that it occurred over time.

Two engineers it engaged offered differing opinions of the loss but they did agree the damage was not caused by an earthquake.

One of the engineers, who inspected the townhouse once, considers the damage is due to the way the townhouse is constructed.

The second engineer, who did not visit the property, identified an adjacent open field which serves as a rainfall watercourse and says there appears to be inadequate site drainage for the buildings in the strata property.

“The evidence from the insurer’s experts emphatically states the earthquake did not cause the loss, although they offer differing opinions on how the damage occurred,” AFCA says.

“Given the property’s distance from the earthquake epicentre, I accept the shaking associated with this is unlikely to be the sole cause of the claimed damage.”

But AFCA says the insurer still has not demonstrate why the loss should not be covered.

The insurer says it does not cover damage caused by or arising directly or indirectly from normal settling, creeping, heaving, seepage, shrinkage, or expansion in buildings, foundations/footings, walls, bridges, roadways, kerbing, driveways, paths, garden borders and other structural improvements.

But the focus of their engineers’ reviews does not establish the above exclusion applies, AFCA says.

Click here for the ruling.