What is a 'flood'?
In many policies, flood is not a defined term.
The popular perception of a flood is of a sudden, natural event such as a river bursting its banks or coastal storm surge. Likewise, some decided cases have placed emphasis on the "sudden accumulation" or "rapid release" of water, and whether the water is present as a result of a "natural phenomenon" such as a storm.
In the context of domestic flood claims, the Financial Ombudsman ("FOS") takes a more inclusive approach. For the FOS, the insured's perception of flood is crucial and the FOS will usually follow Rohan Investments Limited v Cunningham [1998]. There, the Court stated that flood should be given its ordinary and natural meaning and considered in light of the size and character of the insured's property. It is not always the case that the water must result from a natural phenomenon or accumulate suddenly – the focus ought to be on water entering the property and causing damage. In Rohan itself, the Court found that a flood had occurred when 3-4 inches of water entered the insured's property after a flat roof drainage system became blocked.
Following Rohan, a burst pipe or an overflowing lavatory could cause a "flood". As an added complication, such events may, subject to policy wording, also fall under the definition of "Escape of Water". Insurers should check their wordings to ensure that the correct sub-limits and/or deductibles are applied.
Non-disclosure of flood risk
Known flood risk or flooding history is, in theory, a disclosable fact. Insurers of commercial properties which have recently transferred from other insurers may wish to check whether full disclosure has been made of flooding events in the surrounding area.
In the context of domestic flood claims, The FOS is critical of questions on proposal forms which ask about a property by reference to the "surrounding area".
Reinstating the property
Reinstating a flood damaged property may generate issues of its own. The FOS is already beginning to report complaints about the manner in which flood reinstatement works are carried out at these times when insurers' preferred contractors are likely to be stretched.
Reinstatement can also be problematic where a formerly watertight property becomes unable to cope with adverse weather conditions. Here, affecting the necessary repairs will involve an element of betterment and policy exclusions for wear and tear and gradual deterioration may also be triggered.
Business interruption
Flooding claims will also raise the wide area damage issues which were considered in Orient Express Hotels v Generali [2010]. As it stands, the law does not allow businesses to recover financial losses which arise from the devastation of the wider area unless the party in question makes specific provision for wider area damage cover.
Flood claims may also give rise to the argument, first seen in the context of the extreme snowfall events in 2011/12, that a road or railway line which is blocked by water or silt is "damaged", thereby triggering denial of access clauses.
The future
The floods bring into sharp focus the ABI's proposals to ease the pressure of providing flood cover in high risk locations by the introduction of Flood Re – a not-for- profit reinsurance programme to be operated and financed by the industry. Insurers may also wish to consider whether their proposal forms and policy wordings are sufficiently detailed to protect their position when dealing with flood claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
