Soil expansion caused house cracking, not quake: AFCA

Internal cracks that appeared in an NT property, including damage to the floor tiles and cornices, were not caused by an earthquake but the result of foundation heave, soil moisture changes and lack of expansion joints, the Australian Financial Complaints Authority (AFCA) ruled in a claims dispute.

AFCA dismissed the complaint lodged by the property owners, who went to the financial dispute ombudsman after their claim for quake damage was denied by their home and contents insurer, Allianz Australia.

The policy they held covers loss or damage caused by certain listed events including earthquake but there are exclusions.

An extract of the product disclosure statement reproduced in the AFCA ruling says cover is not available and is excluded if the damage is caused by settling, seepage, shrinkage or expansion in buildings, walls, roofs, floors, ceilings, foundations, pavements, roads and the like.

Depreciation, rust, corrosion, deterioration or erosion as well as faulty materials, defect in an item, design or workmanship in an insured’s buildings or contents are also excluded.

Allianz had appointed an engineer to assess the damage after the complainants lodged their claim in October 2019 when they observed cracking damage inside the property.

The complainants say the damage was caused by an earthquake that occurred a few months previously on June 24. The quake’s epicentre was reported as being in the Banda Sea, approximately 700km north of Darwin.

The Allianz engineer, who examined the damage in January 2020, noted in his report the damage to the property had occurred due to building movement brought on from foundation heave.

It was also noted in the engineer’s report that there are aspects of poor workmanship including a lack of ceiling and floor tile movement joints as well as poor detailing of the property’s construction which has contributed to the observed internal cracking.

The engineer also considered data from the USGS Earthquake Hazards Program which indicates that the intensity rating experienced in Darwin from the earthquake was of an intensity rating of less than 4.

Geoscience Australia describes an intensity rating of 4 as “generally noticed indoors but not outside” and that “walls and frame of building are heard to creak”.

Allianz subsequently rejected the claim based on the engineer’s findings.

AFCA says it is not inclined to change its views of the Allianz engineer’s findings even after reviewing the report made by the complainant’s own engineer. They engaged the engineer after Allianz rejected the claim.

The complainants’ engineer, who made the assessment in September last year, says the damage in the property is consistent with damage to other properties inspected by him following the earthquake.

The engineer concluded it was highly likely and most probable that the damage to the property was caused by the June 24 earthquake.

However AFCA says the complainant’s engineer has not provided evidence to support their claim.

“The panel acknowledges the earthquake may have caused the cracks to open further,” AFCA said in its ruling, adding the “[complainants’ engineer] report is not of assistance as it fails to consider the lack of expansion joints observed in the property and other factors such as changes to soil moisture and resultant foundation heave”.