Shopkeeper loses flood vs stormwater dispute

The owner of a store in a Townsville shopping centre has lost a claim dispute after the property was inundated following a storm in February 2019.

The water damage claim was lodged under a business insurance policy held with Suncorp, which denied it on the basis the damage was caused by flood and that was excluded.

There was monsoonal rain and flooding in Townsville in late January and early February 2019, and on January 31 2019 water entered the shopping centre through the roof, and surcharged out of drains in loading docks at the back of the building. After 6pm on February 3 2019, water flowing over the ground entered the shopping centre and rose to around half a metre.

The shopkeeper, who owns 35 stores in a variety of locations under multiple franchises, told the Australian Financial Complaints Authority (AFCA) the shopping centre was initially inundated with stormwater prior to the floodwater, and so the flood exclusion should not apply.

The shopkeeper also said a Suncorp representative – which arranged the policy – should have advised obtaining flood cover. While none of the 35 stores had flood cover, the shopkeeper said Suncorp’s representative should have singled out the Townsville franchise from the rest as at high risk of flood.

In an email to AFCA in August 2019, the shopkeeper acknowledged the product disclosure statement (PDS) sent by the representative was not read in full.

AFCA said the policy clearly informed it does not cover loss or damage arising from flood and it was the shopkeeper’s “responsibility to review these documents and ensure the cover met its needs”.

It ruled in favour of Suncorp, saying courts have previously established that once rainwater mixes with flood water, it is all considered flood water.

“Where rainwater mixes with flood water and causes damage, a flood exclusion will usually apply to defeat the claim. Accordingly, when deciding complaints, consideration has been given to whether there was any rainwater runoff damage before the flood water arrived at the insured property.

“Both initial and peak inundation of the shopping centre in which the complainant’s business is located was caused by floodwater. The policy clearly and unambiguously excludes any damage caused by or arising out of flood and there is no evidence to show the insurer misled the complainant as to the extent of cover,” AFCA said.

The shopkeeper’s landlord, owner of Townsville’s City Arcade, previously issued proceedings against IAG in relation to the same storm event in the Supreme Court of Queensland, which determined the water which inundated the shopping centre was predominantly floodwater.

That October trial outcome refers to the Wayne Tank legal principle, in which where a loss is caused by two causes effectively operating at the same time and one is wholly expressly excluded from the policy, “the policy does not pay”.

AFCA ruled the shop damage was caused after it was inundated by flood water and Suncorp was entitled to refuse payment. Its representative “was not acting as the complainant’s broker” and had not misled, it added – noting that at policy inception, the representative sent a guide stating it was “acting on behalf of Suncorp and not on your behalf” and issued policies on behalf of Suncorp only.

The shopkeeper said the shopping centre was inundated by stormwater well before any floodwater entered the building, and supplied several videos to show water entering the building prior to the arrival of floodwater, as well as photo evidence of water entering via the roof in other parts of the shopping centre.

A Suncorp hydrology expert said local stormwater runoff would not have caused above floor inundation, and it was from floodwater overflowing from the Ross River and nearby Fairfield Waters lake system.

Under a storm cover section, Suncorp’s policy stated “we will not cover loss or damage caused by flood,” which was defined as the covering of normally dry land by water from any lake river, creek or other natural watercourse, reservoir, canal or dam.

AFCA said it was “highly unlikely” runoff from the most intense rainfall was sufficient to inundate the insured property above floor level, and backed Suncorp’s version that both initial and peak inundation of the shopping centre was caused by floodwater.

“The footage does show that water began encroaching over the footpath outside – not the building – shortly after 6pm. However, this does not of itself establish that the insured property was inundated with stormwater before floodwater arrived,” it said.

“There is no evidence that water leaked through the roof causing damage prior to the inundation as occurred in some other areas of the shopping centre.”

AFCA ruled both the initial and maximum inundation above floor level of the insured property was caused by flood, as defined by the policy, and Suncorp was entitled to apply the policy exclusion.

See the full ruling here.