DOES YOUR INSURANCE POLICY COVER FLOOD? (by Tarran Dookie)
UPSURGE IN FLOODS
Floods have become a cause of increasing concern, especially for persons likely to be affected by them. Floods have become the most frequent type of disaster worldwide. That there has been an upsurge in floods cannot be denied. Flood damage due to hurricanes in the USA in the past few years have been enormous. Between 2000 and 2005 Europe suffered more than 100 floods, including 9 major flood disasters. In Trinidad & Tobago and the wider Caribbean the damage caused by floods is also substantial, especially when associated with storms, hurricanes or tropical depressions.
CAUSES OF FLOODS
A flood occurs when an area of land, usually low-lying, is covered with water. When rivers overflow their banks serious floods may result. When the soil and vegetation cannot absorb the water, the run-off water may be so large that drains and other waterways cannot sufficiently carry the excess water and flooding occurs. This problem is worsened when there is uncontrolled denuding of lands, whether for agricultural or construction purposes. Flash floods (those that rise and fall very quickly) usually affect low-lying areas.
Hurricanes have often caused devastating flooding. Sometimes this may result from surges (sea flooding as much as 8 metres high) caused by the leading edge of the hurricane when it moves from sea to land. More often the flooding results from the large amounts of precipitation associated with hurricanes.
In some areas of the world global warming has been blamed as a main cause, as snow melts faster than ever before or increasing precipitation occurs. Flood damage due to storms and hurricanes are also on the increase. In Trinidad and Tobago and the wider Caribbean the main causes are usually identified as:
a) poor or inadequate drainage;
b) increased volumes of water from new housing settlements without proper infrastructure to deal with it;
c) rivers becoming clogged;
d) increased soil erosion due to deforestation, slash and burn agriculture, and excavation related to building construction;
e) increasing levels of torrential rainfall due to changing weather patterns.
HOW FLOOD IS GENERALLY DEFINED
The Concise Oxford Dictionary defines flood as ‘an overflowing or influx of water beyond the normal confines especially over land’. Flood therefore means ‘too much water’ in an area where it is unwanted.
Similarly, the UK Environment Agency defined flooding as ‘inundation by river or sea water whether caused by inadequate or slow drainage or by breaches or overtopping of banks and defences’.
Flood was initially defined in Young v Sun alliance (1978) as ‘a temporary movement of water, an unusual phenomenon of some violence and not gradual seepage.’ More recently, in Rohan Investments Ltd v Cunningham (1998), the court of Appeal held that a flood could originate from an accumulation of water that was not large in absolute terms. One of the judges went further and said that a flood could arise from the slow and steady build up of water and that it was not even necessary for the ingress of water to arise from a natural phenomenon. In his opinion, ‘flooding may or may not result from such weather extremes as storms and tempest.’ He went on to say that ‘it is the water that enters and damages the property that is important, not the area or depth of flooding outside that counts.’
LEGAL WRANGLING OVER FLOOD IN THE USA
Huge flood losses as a consequence of Hurricanes Katrina and Rita in 2005 have resulted in several legal battles in the USA concerning whether insurance policies should pay for resulting water damage. Most homeowners’ policies written by commercial insurers exclude water damage resulting from windstorm or hurricanes. The policies pay for the wind damage but not for the water damage. The flood coverage is available through the National Flood Insurance Program (NFIP). Unfortunately a large number of policyholders incorrectly believe that their homeowner’s policy covers flood losses.
US policies that exclude water damage generally use language that make it clear by using wording such as “whether driven by wind or not.” In such cases the courts have generally ruled in favour of the insurers, upholding the exclusion e.g. In Re: Katrina Canal Breaches Litigation, 495 F.3d 191 (5th Cir. 2007). Where the language is not clear or it is ambiguous, decisions have been made in favour of the insured.
DEFINITIONS OF FLOOD IN TRINIDAD & TOBAGO POLICIES
The commercial fire and special perils policy defines flood as “the overflowing or deviation from their normal channels of either natural or artificial water courses, bursting or overflowing of public water mains and any other flow or accumulation of water originating from outside the building insured or containing the property insured but excluding: –
(a) Loss or damage directly caused by Subsidence or Landslip
(b) Loss or damage by flood caused by Earthquake, Volcanic Eruption,
Hurricane, Cyclone, Tornado or Windstorm.”
This wording is quite clear and wide-ranging and we ought not to experience the problems of interpretation encountered in the US markets. The wording embraces three situations:
a) The overflowing or deviation from their normal channels of either natural or artificial water courses. This would include rivers and natural drains as well as man-made drains.
b) Bursting and overflowing of public water mains. These mains may or may not be leading to the insured’s premises.
c) Any other flow or accumulation of water originating from outside the building. This is quite wide-ranging and would pick up other types of flooding. Examples would include reservoirs, ponds and lakes, and seepage from rising water tables following extended rainfall.
Loss or damage directly caused by subsidence or landslip is excluded from the scope of cover under the peril of flood. However, the policy may be extended to cover collapse due to subsidence and landslip.
Loss or damage by flood caused by Earthquake, Volcanic Eruption, Hurricane, Cyclone, Tornado or Windstorm is excluded but it must be pointed out that flood damage due to these perils are covered if the policy includes these perils. It would mean that the client’s policy should include the perils of earthquake and windstorm as well as flood to ensure full protection.
Commercial policies generally impose a deductible or excess of 2% of the sum insured subject to a minimum of $5,000.
The household policy does not define flood. Generally, it simply says that the insurers will indemnify the insured in the event that the insured property is damaged by flood. Some policies exclude damage to fences, gates and movable property in the open. Most policies carry an excess of $1,000.
The lack of a definition in the household policy could cause problems and disputes when there is loss or damage due to flood. Since the policy does not provide a definition, claim handlers may have to be guided by the following:
a) how dictionaries define flood;
b) the ordinary meaning of flood;
c) legal precedents (in this regard Trinidad & Tobago and the English- speaking Caribbean would consider precedents in the Caribbean, the UK and Commonwealth countries since our legal system closely follows the British pattern and the final court of appeal remains the Privy Council).
A comprehensive motor policy does not automatically cover flood. It must be included as an extension, usually for an additional premium. As with the household policy, there is no definition and the same considerations outlined above would apply.