Consumer Advice

Gradual deterioration and resultant damage


Gradual deterioration

Most property insurance policies are designed to cover sudden, unexpected and unintended losses and most claims automatically fall within this definition: e.g. fire, theft, flood, burglary, accidental breakage etc.

However some losses are not caused by these types of events and Insurance is not designed to cover them. This is because they are not sudden, but are often avoidable by taking normal reasonable measures to maintain property in a reasonable condition. This includes carrying out routine general maintenance as well as remedial maintenance, once a problem or fault is first noticed. To emphasise the importance of these two requirements, they have been written into most insurance policies as a condition of coverage. This means if they are not followed, a claim of this nature could be declined.

These are usually the types of claims that involve gradual deterioration and/or resultant damage.

Gradual deterioration will normally be mentioned in the exclusions and/or definitions sections of a policy in a format similar to the following (each policy wording should be checked carefully):

Exclusions
This insurance does not cover any of the following:

  1. wear and tear
  2. mildew, rot, corrosion, rust or gradual deterioration save as provided for in the “Damage by Gradual Deterioration” extension.
  3. scratching, denting or chipping

For example compare the following two events:

  1. A homeowner has never checked or painted their iron roof. Over a period of time it gradually becomes rusty, develops a hole, and in a heavy downpour water leaks into the house, damaging the ceiling and walls
  2. A homeowner always maintains their home in reasonable condition. A severe storm rips an iron sheet from the roof and water leaks into the house, damaging the ceiling and walls.

Loss A is not sudden and could have been prevented by normal routine maintenance. This loss is a result of gradual deterioration (a policy exclusion) and the maintenance condition has not been followed (a policy condition), so the loss is not covered.

Loss B occurred as a result of a sudden event and as the insured has complied with all policy conditions, the loss is covered.

Resultant damage

An insurance policy also considers the direct cause of each part of a loss. So, if we consider the above examples again:

The damage to the house is caused by two different actions:

Loss A
The damage to the roof was caused by gradual deterioration.
Loss B
The damage to the roof was caused by the storm.

But in both cases the damage to the ceiling and walls was directly caused by the sudden deluge of water into the house. This is called resultant damage.

As sudden water damage is normally covered by insurance, Insurers decided it would not be correct to decline both parts of Loss A, when some of the Loss is covered in Loss B.

Therefore Insurers came up with the concept of resultant damage. In Loss A the damage to the roof is not covered (excluded), but the resultant damage to the ceiling and walls is covered (normally a covered loss).

However there are two main occasions where resultant damage is not covered:

  1. If the maintenance condition is not complied with and the insured knew about the fault (rusty roof and hole), and did nothing to remedy the fault. In this case the entire claim could be declined.
  2. If the resultant damage is also gradual in nature (excluded)

Gradual deterioration extension

This clause was introduced by Insurers to provide some cover for gradual deterioration in specific situations when it was deemed unfair to exclude coverage. However coverage is only for leaking internal water pipes (refer to each policy wording for exact wordings and coverage).

For example:
An internal water pipe in a house bursts or leaks, resulting in water damage to the insured property. Three factors complicate these types of claims:

  1. The leak is normally deemed to be a gradual deterioration event, even if it happens suddenly. The pipe or joint has weakened gradually over time, until suddenly bursting/leaking. Therefore normally these claims would be excluded. This extension allows insurers to cover these losses.
  2. Sometimes it is necessary to actively break into wall cavities/floors to discover where the leak is coming from, so it can be repaired. The costs associated with discovery and repair of the fault are not covered under an insurance policy. This is because the damage although necessary is deliberate (not accidental). Also because it happens as part of the process of repair, it is considered normal maintenance work (policy condition).
  3. The damage to the property can be composed of two parts.
    Sudden damage – water staining, expansion of wall linings and fittings
    Gradual – rot, mould and warping of structural beams, linings, carpets etc

The gradual damage extension allows the policy to cover both sudden and gradual damage for this type of loss, usually to a preset limited ($2000-$3000) depending on the policy wording.

You may also refer to the ISO website insurance guides, which provides similar information on the above issue www.iombudsman.org.nz

 

 

 

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