Flooding claims and insurance Robert W Vivian Professor

Flooding claims and insurance Robert W Vivian Professor of Finance and Insurance University of the Witwatersrand Conference of the Institute of Loss Adjustors Johannesburg 7 th May 2009

Insurance • Insurance is involved when: – A policy ie an insurer and insured linked by a contract of insurance – The insured contingency materializes • All will agree in life, things are of course, not as simple as they appear!

Process • Things usually start when someone suffers a loss • The question then arises is this an insured loss? • The answer to that question is, does the loss fall under the cover provided by the policy? • The answer to this is to examine the specific policy • Policy wordings may indeed differ

Historical covers • Marine – Flood is not marine • Fire – Flood is not fire • Life – We are not concerned about death by flooding • Accident – It could be in an assets all risks (perils) policy

Insurance however evolved • Fire, natural perils, special perils and additional perils • It is at this point, things become professional – what matters is the actual policy wording. • Various policies may prima facie cover the contingency. Knowledge of the broker or loss adjuster is important • Let us try the Mulitsure (ex Multimark) policy

The question of onus • The legal rule: ‘He that avers must prove’ – Onus on the insured to show that the loss falls within the scope of the policy – ‘Four corners of the promise’ – Onus on the insurer to prove it is: • Excluded, which can be – Excluded because of a term in the policy – Excluded because of the operation of an insurance law doctrine eg material non-disclosure, insurable interest and so on.

Multisure wording Damage … by: 1 4 Fire … Such additional perils as are stated in the schedule to be included Special perils extension Damage caused by: 1 Storm, wind, water, hail or snow excluding damage to property (a) arising from its undergoing … (b) caused by tidal wave … (c) in the underground working of any mine (d) in the open (e) in any structure not completely roofed (f) being retaining walls

At least two problems • Interpreting the contract (what do these words mean) – There are rules to assist us in this regard • Causation – There are centuries of case law on causation

Meaning of water • Damage caused by … water … • Ejusdem generis rule – words which have general meanings are restricted to their context • Damaged caused by Storm, wind, water, hail or snow. – Storm, wind, hail, snow all natural perils … is water (and wind) restricted to water associated with natural perils ie does water mean (flood? )-water? • If the claim is one involving floodwaters there is no problem • But is damage to property caused by the bursting of a Rand Water Board main covered by the extension? It is damage caused by water but not caused by a natural water peril.

Meaning of damage to property • Why are the following cases forgotten when dealing with property claims? – In re Wright and Pole (1834) 1 Ad & El 621 – Menzies v North British and Mercantile Insurance Co Ltd (1847) 9 Dunl 694 – Niblo v North American Fire Insurance Co 1848 1 Sandf NY 551 – Theobald v Railway Passengers' Assurance Company (1854) 10 Exch 45 • Damage to property is confined strictly to damage to property ie limited to the fabric of the property

Now for some examples • Kelly v Norwich Union Fire Insurance Society Ltd 1989 2 All ER 888 • Young v Sun Alliance and London Insurance Ltd 1976 3 All ER 561

Kelly v Norwich Union Fire Insurance Society 1989 CA • In September 1977 the main water main in the street, burst causing a prolonged discharge of water • The policy commenced in October 1977 and thereafter the house manifested damage due to the water. • It was accepted the policy covered damage caused by burst water mains • The cover was in respect of ‘events occurring during the period of insurance’ • So if a main bursts before the inception of the cover but the damage occurs after the inception of the cover, is the insurer obliged to indemnify the insured?

Kelly v Norwich Union Fire Insurance Society 1989 CA • Decision – The event must occur in the period of insurance ie the burst pipe? – Not altogether convinced

Young v Sun Alliance 1976 • Policy covered damage from clause 9 ‘storm, tempest or flood’ (told you the actual wording is important) • House built on a meadow – after rains water seeped into a ground floor, room – eventually the room was under 3” of water • Situation remedied at considerable cost for which the insured claim and claimed for the cost of redecorating the room • Policy the normal householder’s policy

Young v Sun Alliance - judgment • Three words, storm, tempest and flood – All natural phenomena but that is not all – Unusual manifestations of these phenomena – Ie water in a place and form to be expected is not covered by these words – Seeping water not included in the notion of flood

Young v Sun Alliance - decision • Decision – Claim dismissed ie insurers repudiation upheld

Meaning of caused • Causation – Causation in contract • Causation in contract of insurance – Causation in delict – Causation in criminal law • These are not the same but this is largely forgotten – that is a problem

Causation in insurance • Proximate cause – Proximate from which we get the idea of being in ‘close proximity’ meaning being near – Proximate cause – the nearest or immediate not remote cause. • S 55(1) Marine Insurance Act – “Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately cause by a peril insured against. ”

Causation in insurance • Largely a question of fact not law • Decisions often difficult to reconcile: – Etherington v Lancashire and Yorkshire Accidental Insurance Company 1909 1 KB 591, falls off horse, lies on wet ground and dies of pneumonia – death by accident or natural causes? – Leyland Shipping Company v Norwich Union Fire Insurance Society 1918 AC 350. A ship struck by torpedo, limps to harbour but sinks when a storm blows up – war damage or storm damage? – Symington v Union Insurance Society of Canton 1928, cork thrown overboard to prevent the spread of fire, was the loss of cork fire damage? – Winspear v Accident Insurance Association 1880 6 QDB 42, man has a fit while crossing a stream – falls in and drowns. Did he died from an accident for the fit? – Everett v London Assurance Company, 1865 19 CBNS 126 a fire causes a explosion which damages buildings a mile away. Was the damage to these remote buildings, fire or explosion damage?

South African cases • Rabinowitz NO v Ned-Equity Insurance Company Ltd 1980 1 SA 403 W. The insured was seen to plunge to his death in his new glider. The policy had a suicide exclusion. Was the cause of his death suicide? • Oelofsen v Concorde 1992 A involved a claim in terms of a personal accident policy. Policy covered ‘bodily injury which independently of any other cause results in death’ O has an accident in which he is not injured at all. Hours later he died of a heart attack. He was known to have a serious heart condition. Did O suffer bodily injury and if so was it independent of other causes?

Causation in delict • Can doctrines of causation in delict be applied to insurance? • There is a clear tendency in that direction • Take Grobler v Naspers as an example • Can doctrine of causation in criminal law be applied to insurance?

Exclusions • Storm washes the land away and the house collapse because of the loss of support • Operative clause – loss or damage by water • Excluding damage caused by subsidence and landslip

Insurance doctrines and policy terms • Material non-disclosure – Risk known but not disclosed – Condition known but not disclosed • Terms – question of interpretation of contract (does causation apply – recent approach of the short-term Ombudsman) – Failure to take reasonable precautions – Failure to maintain

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