Florence runs a cake shop and a commercial kitchen from adjoining premises. In April she noticed some water on the floor of the cake shop but could not see where the water was coming from. Florence cleaned the water up, but over the following weeks she noticed the water kept reappearing and called in a plumber and then a builder.
Because the water was an intermittent problem, and no one could work out the cause, it was some months before the builder and plumber took the plasterboard off the wall between the cake shop and the kitchen and discovered the problem. The wastewater pipe had split at the point where the pipe turned a corner. Neither the builder nor the plumber could say for sure why the pipes had split, but, by November, the damage was repaired, and no further water appeared.
Florence submitted an insurance claim for the cost of repairing the leak. The insurer asked a loss assessor to review the claim. There was evidence of black mould on the plasterboard, so the loss assessor concluded that the damage had occurred over time. The insurer declined the claim on the grounds of gradual damage.
Florence did not accept the insurer’s decision and complained to FSCL.
Florence said, regardless of whether the damage was sudden or gradual, the cost to repair it would have been the same. As there was some uncertainty about what had caused the pipes to split, it would be reasonable for the insurer to contribute to the loss.
The insurer disagreed. Although it was not possible to determine what caused the pipe to split, it was likely the result of continued pressure over time. Once the pipe had split, the resulting damage had occurred over some months between April and October when the problem was finally located.
We could understand Florence’s perspective. Florence had insured her premises, damage had occurred, and she expected that damage to be covered by the policy.
However, we referred Florence to the policy wording. While the damage was neither expected not intended, and so the insuring clause was met, the insurer was entitled to consider whether any exclusion clauses apply.
It was our view that the insurer was entitled to rely on the policy exclusion for gradual damage. Although the exact cause of the pipe failure was not known, it appeared that, over time, stress at the 90-degree joint caused the pipe to split. Although Florence suggested that an earthquake could have caused the split, it was our view that, more likely than not, the split was as a result of stress over time and was therefore gradual damage. Water leaking from the pipe had caused further damage, being the gradual deterioration of the plasterboard.
Florence reluctantly accepted our view and agreed to discontinue her complaint.
Insights for consumers
Gradual damage or gradual deterioration is often excluded from insurance policies. The reason for such an exclusion is that damage occurs over time and should be noticed by the insured and repaired before the damage becomes too considerable. This is, of course, difficult where deterioration is hidden from view. Some domestic insurance policies may provide limited cover for hidden gradual damage, but that was not the case for this commercial policy.