Pool owner loses court battle despite broker breach

The owner of a 25-metre swimming pool lifted out of the ground after heavy rain has lost a NSW Supreme Court case launched against a broker after she discovered her policy wouldn’t cover the repairs.

The insured, who sought damages of $2,083,061.75, initially had cover for the pool through CGU, but after a surge in the premium expense cover was switched to a Vero homeowner’s policy.

Sue Flanagan, a medical doctor, argued to the court that broker, Robert John Bernasconi, then with Nadic Insurance Brokers, did not advise that, while both policies insured the property for some $3.5 million, the Vero cover excluded the pool.

The empty pool was damaged when it partially lifted out of the ground, surrounding concrete and tiles and connected equipment was also damaged and a pool building wall collapsed, but Vero declined a claim in October 8 2013 due to the exclusion.

The court heard that the insured, following a marital separation, had been considering commercial options for the property, including for the pool and tennis court or using the property as a private function venue.

But the pool and structure were demolished in 2014 “given the requirements of her financier and not then having the means to rebuild” and with safety also taken into account.

The court heard the CGU premium, before the insurance change, was going to almost double compared with the previous year, with increased bushfire risk an issue for insurers. The broker still considered the CGU policy offered the best cover, but conflicting evidence was given over how the Vero policy came to be taken out, instructions given and discussions held about the insurance.

Supreme Court Acting Justice Monika Schmidt favoured the policyholder’s evidence and said it had emerged as common ground that the broker had not told the insured that the Vero policy contained an exclusion that wasn’t in the CGU policy and others available.

“I consider that it must be accepted that had Mr Bernasconi drawn the difference in the policies to Dr Flanagan’s attention, that the Vero policy did not provide the full insurance which the CGU policy did would have been of concern to her,” the judgment says.

Justice Schmidt says she is satisfied on the balance of probabilities that if not for the broker’s breach, the insured would not have taken out the Vero policy, but would have accepted his views about the cover CGU offered.

Nevertheless, the court also heard that CGU and other policies contained provisions related to “defects and reasonable precautions” and the pool had a faulty hydrostatic relief valve, creating problems during the heavy rain given the pool was empty.

“Instead of operating one way to allow water into the pool to equalise that pressure, the valve was allowing water to leak out. The result of the defect eventually permitted the pool to lift, with resulting damage to the pool and pool structure,” the judgment says.

The court heard that previously a faulty valve involving a leak had to be replaced, and in 2012 there was another leak, the cause of which had yet to be identified, but without taking further advice the owner had decided to leave the pool empty.

As a result, if cover had been held with CGU or under another policy, it could not be satisfied that the insured had taken reasonable precautions to prevent the risk of the pool lifting while empty, and the obligation under the policy to cover the damage would not have been engaged, the decision says.

The case for damages to be paid by the broker was not accepted by the court.

“I have concluded that despite the admitted breach, there must be judgment for the defendants,” Justice Schmidt says.

The decision is available here.