Commissioners Corner – Water Damage Claims and Who Pays Explained

Taking into account the number of calls we receive on the issue, water damage is a hot topic for lot owners and bodies corporate.

In doing a bit of basic research for this article, I came to understand that in Australia, water damage insurance claims are a big part of the insurance market.

Here’s one report which suggests water damage insurance claims have risen by more than 70 per cent in the last five years. The same report suggests that the average water damage claim is now more than $30,000 – no small amount of money.

It has been suggested that water damage claims are now only second to wind and hail damage as the biggest source of claims, while the percentage of water damage claims have increased whereas others have stayed the same or even decreased.

So if we accept these reports (and please note, I’m not vouching for their accuracy or objectivity, just merely passing on what they’re saying), a few questions immediately spring to mind:

• What’s behind these increases?
• Where do things stand for water damage claims in the body corporate context?
• Are there some preventative measures that can be considered?

While my Office is not the source of expertise on insurance, in relation to the first question, it seems that, from the articles I mention above and other similar reports some of the factors behind these increases might include:

• the higher numbers of appliances (e.g. refrigerators) having to be plumbed in, in other words, the more connections to a water source, the more chances there might be a water leak and water-related damage;
• the fact that hoses (e.g. so-called braided hoses) as part of water connections can have a finite lifespan, a fact not always well known; or
• home owners just not being as conscious about water-related damage as they are for things like fire or theft, which can be more immediate in impact.

I think these are important factors to bear in mind. They might go some way towards addressing the third question above, which I’ll get to in more detail later in this article.

For now, let’s turn our attention to the body corporate side of things.

A body corporate is required to take out insurance cover as prescribed under the relevant Regulation Module. For the purposes of this article, I’ll reference the Standard Module and in particular, sections 178 and 179 of the Standard Module which provide that the body corporate must:

• insure for full replacement value the common property and body corporate assets; and
• ensure the policy covers ‘damage’, costs incidental to reinstatement or replacement of insured buildings and provide for the reinstatement of property to its condition when new.

Both ‘building’ and ‘damage’ are defined in section 176. Of note is that the definition of ‘building’ specifically does not include ‘appliances…not plumbed in’, while the definition of ‘damage’ does include ‘water damage’.

In the body corporate context it can be very challenging to determine the source of a water leak, or water ingress as it is called. For example, if you are standing in the lounge room of your lot and there is water dripping from the ceiling above you, your immediate thought will likely be, “Well, that’s coming from the upstairs lot so it’s their responsibility to fix”.

To which I’d say – not so fast. While it may be from the upstairs lot and something the occupier of the lot is (or isn’t) doing which is contributing to the ingress, it also might be the failure of some part of common property contributing to it.

If water ingress can be traced to common property and the body corporate’s failure to maintain common property, as is their statutory responsibility, then the general rule of thumb is that the body corporate should be responsible for the resultant damage.

At this point, a lot of readers are probably asking,  “Well that’s all well and good, but how do we determine the source of ingress anyway?” The answer is: by seeking expert advice from a plumber, engineer or some other professional who is qualified to provide this kind of advice. My Office certainly isn’t qualified to comment on the source of water ingress and I doubt many lot owners, committee members, caretakers or body corporate managers would be either.

I appreciate that getting expert advice might be difficult (if there is a scarcity of those experts to hand) and costly. However I’d suggest it’s the only way to say with any certainty just where water ingress is coming from.

As for who might pay for this expert advice, an owner can request the committee to pay for the investigatory work to get the advice (if it is within their spending limit) and the committee or body corporate may make a decision to do so if they consider it reasonable in the circumstances. Or an owner may decide to pay for the advice out of their own pocket and this might be a more expedient way of doing things depending on the seriousness of the water damage. The owner may then look to have those costs reimbursed by the committee or body corporate at a later stage, if the expert advice is that the water ingress is a body corporate responsibility.

Once there’s some expert advice regarding the source of the water ingress, then it’s a matter of seeking to resolve the situation from there and, ideally, it should be straightforward – that expert advice is accepted and agreement is reached on how to fix and who pays, in what amount.

Of course, things don’t always pan out like that. One party might disagree with the expert advice. Or there might be two pieces of advice, each with competing views. Or, even with expert advice, the other party might refuse to enter into discussions to do work or to pay.

It’s when there is a dispute between parties and all their efforts to resolve it are exhausted that my Office has a role to provide dispute resolution.

Conciliation will be the first step in just about all disputes of this type and we see excellent results in this facilitated, voluntary process. Otherwise, adjudication may be required and that is a more formal process based on written submissions which results in an order.

It’s much better to have a lot owner and the committee agree on terms together about addressing water ingress than have a decision imposed upon them which could take months to arrive at via the adjudication process. Although some matters might raise complex legal issues about maintenance responsibility which would need an adjudicator to determine them.

Throughout this article I’ve referred to things in terms of a lot owner. A tenant, or occupier as they are known under body corporate legislation, also has a right to have water ingress investigated, if it is an issue stemming from common property. Occupiers can approach the body corporate directly, as well as their landlord or real estate agent, depending on the particulars of the situation. Landlord insurance may be relevant in such situations.

My Office often gets enquiries from owners in situations where there has been water ingress into their lot, which has made the lot uninhabitable and that has resulted in loss of rent. Adjudicators can’t make orders for loss of rent in this situation and an owner would need to seek legal advice or refer to their own insurance policies about their options in this regard.

Let’s now return to the third question posed earlier, namely, if there are all of these considerations in a dispute, are there any preventative measures that can be taken?

I’d suggest the answer is yes, for both an owner and the body corporate. An owner has a legislated responsibility to maintain their lot in good condition and the body corporate has a responsibility to maintain common property and in both cases, it stands to reason that those responsibilities extend to maintaining things sufficiently against water damage.

For an owner, that might mean being vigilant about even minor-seeming things such as a dripping tap. It might also mean if the lot is going to be vacant for a period of time (such as over the holidays), turning off the water for the lot could be a preventative measure. We’ve also heard stories and seen disputes about major water ingress happening as a result of overflowing bathtubs (including people falling asleep in bathtubs), so this is something an owner or occupier can certainly be mindful of.

For the body corporate, it might mean having a proactive maintenance plan for its common property so that it can address potential water ingress sources before they actually become a problem. Doing so might also assist in reducing the insurance excess or annual premium.

Another practical suggestion for the body corporate is having its roll updated and particularly having it updated with contact details to reach an owner or occupier in an emergency. If the worst happens and there is a major water issue, at least this way owners and occupiers can be quickly notified and, if the water ingress is coming from a particular lot, hopefully the owner or occupier could attend and stop it at the source.

The information in this article may not solve every water damage issue in a body corporate – there are so many possible variations of water damage to consider – but it is at least a starting point to try to get a difficult situation resolved.

For further information please contact the Information and Community Engagement Unit of my Office on 1800 060 119 or visit our website www.qld.gov.au/bodycorporate.

This article was contributed by Chris Irons, Commissioner for Body Corporate and Community Management