Is the cause of damage covered?

The source or cause of damage to the home is not always covered by a house insurance policy. Insurance is designed to cover the result of something going wrong, but not the cause of damage itself.

For example, an old pipe decays and eventually bursts, causing water damage to the house. Homeowners often expect that all of the costs to have this fixed will be covered, but this is not always the case.

House insurance policies generally have an exclusion for faults or errors in items. A common exclusion a homeowner would find in their policy is:

You are not covered for loss, cost or expense arising from the fault, defect, or omission on:

1. design, plan or specification, or

2. workmanship, construction or materials.

However, this exclusion applies only to the property directly affected, It does not apply to resultant damage and accidental loss to other parts of the property.

So, what is covered? (Examples)

This means your insurance policy covers all the resulting damage of a fault at your house, but does not cover the repair of the fault itself. Insurance does not cover faults in design or deterioration as this is not an insurable risk.

1. Rusted pipe bursts and causes water damage throughout house:

Insurance will cover all the costs of repairing the water damage, e.g. carpets, walls, and re-decorating.

However the costs to repair and replace the rusted pipe is not covered. This is deemed a fault in the materials due to the old age of the piping.  The homeowner is responsible for this cost. An insurance policy is not a property maintenance cover and homeowners are therefore expected to pay for the costs of fixing faulty or old materials at their home.

2. Leaking hot water cylinder valve causes water damage to downstairs ceilings and walls:

Insurance will cover the builders costs of repairing the walls and ceilings that has been water damaged.  Its important to note here that many policies have a hidden gradual damage limit of between $1,000 and $3,000.

However, the home-owner will need to pay for a new valve and the labour costs of installing it.

To learn more about Hidden Gradual Damage, please see here.

When is the cause of the damage covered? (Examples)

The crucial factor when working out what is covered is determining the specific cause of the loss.  If the cause is external to the house and is not related to the direct failure of something in the home (a water pipe for example) then everything, including the cause will be covered.

1. An overnight freeze causes a water pipe to crack:

Water damage to walls and flooring occurs.  Insurance will cover the cost to repair all the resulting damage, and also the crack in the pipe is damage resulting from the freezing.  The cause of the loss is not the pipe failing, it’s the low temperatures so the pipe is considered resultant damage.  

2. A wind storm blows part of the roof off the house and rain then causes water damage:  

Again the key difference here is that the damage has been caused by something external and unrelated to the roofing itself.  All damages including the repair to the roof and the subsequent water damage will be covered by a house insurance policy.  If the roof had simply started leaking by itself (which is relatively common for older houses with original roofs), the the cost to repair the water damage (eg new gib ceiling and insulation) would be covered by house insurance but the repair to the roof would not.

3. A power surge causes the switchboard to catch fire, and damages appliances:  

All damage is covered by insurance as the cause of the loss was not a faulty switch board but rather an electrical spike that was an external event.