Property insurance claim denials are a frustrating reality for many New Zealand homeowners. Understanding the common reasons for these denials, and taking proactive steps to avoid them, can save you significant stress and financial hardship. This article explores frequent causes for claim rejections and provides actionable tips to navigate the New Zealand property insurance landscape effectively.
Understanding Why Insurance Claims Are Denied
Insurance companies don’t deny claims arbitrarily. They have specific policy wordings and legal obligations they must adhere to. A claim denial usually stems from a mismatch between the damage and the policy’s coverage, a breach of policy conditions, or misrepresentation of facts. Let’s dive into some prevailing reasons.
Lack of Adequate Maintenance
This is a major culprit behind many denied claims. Insurance policies aren’t designed to cover damage that results from long-term wear and tear or neglected maintenance. For instance, if a leak in your roof causes significant water damage inside your home, but the roof was known to be old and in disrepair, your claim could be denied. Insurers expect homeowners to take reasonable steps to maintain their property and prevent foreseeable damage.
Prevention is Key: Implement a regular maintenance schedule. This should include yearly inspections of your roof, gutters, plumbing, and electrical systems. Document these inspections with photos and written notes. Clear gutters regularly, trim trees away from the house, and promptly repair any signs of leaks, dampness, or rot. Consider hiring professionals for specialized tasks like plumbing inspections or pest control. Even seemingly small issues, if left unattended, can escalate into major – and uninsurable – problems.
Case Study: Imagine a homeowner who noticed damp patches on their ceiling for months but ignored them, assuming it was condensation. Eventually, the entire ceiling collapsed due to a severe roof leak. The insurance company denied the claim, citing that the homeowner’s failure to address the initial dampness contributed substantially to the final collapse. Regular maintenance could have prevented this outcome entirely.
Exclusions in Your Policy
Every insurance policy contains a list of exclusions – specific events or types of damage for which coverage is not provided. Common exclusions in New Zealand property insurance policies include: damage caused by gradual deterioration, inherent defects in the property, or certain types of earth movement beyond what’s covered by the Earthquake Commission (EQC). Understanding these exclusions is crucial. For example, many policies have specific limitations on mould damage, only covering it when it’s the direct result of a covered event like a burst pipe.
Know Your Policy Inside and Out: Don’t just skim through your policy documents. Take the time to thoroughly read and understand the exclusions section. If you have any questions, contact your insurance company or broker for clarification. Consider asking for examples of what is and isn’t covered under each exclusion. Look for specific language. For instance, does your policy cover damage from “storm surge” or just “storm”? Understanding the nuances can prevent unexpected claim denials.
Example: Many policies offer limited cover for damage from faulty workmanship. If a newly installed shower leaks due to the plumber’s negligence and causes water damage, the policy might cover the secondary damage but not the cost to fix the original faulty plumbing. This highlights the importance of using qualified and insured tradespeople.
Earthquake and Natural Disaster Damage
Earthquakes are a significant risk in New Zealand. While the Earthquake Commission (EQC) provides natural disaster insurance for residential properties, there are limitations to its coverage. EQC covers land damage up to certain limits and building damage up to a specified amount, typically covering the repair or replacement of a dwelling, but not its contents. Private insurance policies then provide top-up cover for events above the EQC caps and also cover contents.
Understand EQC Limits and Your Private Policy: Familiarize yourself with the current EQC cap for building and land damage. Ensure your private insurance policy provides adequate coverage above these limits. Consider whether you need additional coverage for landslips, floods, or other natural disasters prevalent in your area. It is also important to understand your policy’s definition of “natural disaster” and how it interacts with EQC coverage. Did you know that some damage, stemming from natural disaster, could come under review by EQC?
Earthquake Strengthening: If your home is older or built to pre-earthquake building standards, consider earthquake strengthening measures. While this is an upfront investment, it can significantly reduce the risk of damage in a major earthquake, potentially lowering your insurance premiums and minimizing the chances of a denied claim due to pre-existing structural weaknesses. You might be eligible for financial assistance for seismic strengthening from your local council or government initiatives.
Case Example: Following a major earthquake, a homeowner submitted a claim for extensive damage to their house. EQC covered the portion of the claim that fell within its limits. However, the remaining damage exceeded the homeowners sum insured on their private policy and also, damage was detected due to wear and tear. The homeowner’s private insurance company rejected the remaining portion, citing an inadequate sum insured and the damage as not solely caused by the earthquake. This illustrates the importance of being realistic about your insured value.
Incorrect or Undervalued Sum Insured
Many homeowners make the mistake of underestimating the cost to rebuild their home if it were completely destroyed. This is known as the “sum insured.” If your sum insured is too low, you might find yourself significantly underinsured in the event of a major loss. The common mistake lies in confusing market value with rebuild cost. The market value includes the land, neighborhood desirability, and other factors, while the rebuild cost focuses solely on the expense of reconstructing the building itself. Insurers will only pay up to your sum insured.
Regularly Review Your Sum Insured: At least every year, recalculate your home’s rebuild cost. Use online rebuild cost calculators, consult with a quantity surveyor, or seek advice from your insurance company. Factors like inflation, changes to building codes, and renovations can all impact the rebuild cost. Don’t assume that your sum insured automatically increases with inflation; check your policy wording to confirm. Take note that depending on the market you could be competing with others for materials and labor which can drive the insured price even further. Remember to factor in the cost of demolishing and removing the old building, site clearance, and professional fees (architect, engineers, etc.).
Guaranteed Replacement vs. Sum Insured: Some policies offer “guaranteed replacement,” meaning the insurer will cover the full cost of rebuilding your home, even if it exceeds the sum insured. However, these policies often come with higher premiums and may have specific conditions. Consider whether guaranteed replacement is worth the extra cost for your circumstances.
Non-Disclosure or Misrepresentation
When applying for insurance, you have a legal obligation to disclose all relevant information that could affect the insurer’s decision to offer coverage or the premium they charge This includes past claims, any known defects in the property, or unusual circumstances that might increase the risk of loss. Failing to disclose information or providing false information can invalidate your policy and lead to a claim denial.
Be Honest and Transparent: When answering questions on your insurance application, be truthful and complete. If you are unsure whether something is relevant, disclose it anyway. Err on the side of caution. Maintain records of all communications with your insurance company, including copies of your application, policy documents, and any correspondence. If you have a past claim, be prepared to provide details about the nature of the claim, the amount paid out, and any steps you took to prevent a recurrence.
Impact of Renovations: Inform your insurance company of any significant renovations or alterations you make to your property. These changes can affect the rebuild cost and the risk profile of your home. Failing to disclose renovations could result in your sum insured being inadequate or your policy being invalidated.
Wear and Tear vs. Sudden Accidental Damage
Insurance policies are designed to cover sudden, unexpected, and accidental damage. They generally do not cover damage that occurs gradually over time due to wear and tear, lack of maintenance, or inherent defects. Distinguishing between these two types of damage is crucial when filing a claim.
Document Damage Promptly: If you experience a sudden event that causes damage to your property (e.g., a burst pipe, a fire, storm damage), document the damage immediately with photos and videos. Take steps to mitigate further damage, such as covering a damaged roof with a tarpaulin. Contact your insurance company as soon as possible to report the claim. Be prepared to provide evidence that the damage was caused by a sudden, accidental event, not by gradual deterioration. Consider saving receipts when you hire a tradie for a job (even outside scheduled maintanence). This could help support your claim.
Example: A dishwasher leaks and causes floor damage. If the dishwasher was relatively new and the leak was caused by a sudden failure of a component, the damage would likely be covered. However, if the dishwasher was old and the leak was due to gradual corrosion, the claim might be denied as wear and tear.
Policy Lapses and Unpaid Premiums
This sounds obvious, but is the most common reason, make sure your insurance policy is active. If you fail to pay your premiums on time, your policy may lapse, meaning coverage is suspended or terminated. If a loss occurs during a period when your policy has lapsed, your claim will be denied. Keep in mind policies often auto-renew.
Set Up Automatic Payments: To avoid the risk of accidentally missing a premium payment, set up automatic payments from your bank account or credit card. Review your policy documents regularly to ensure your coverage is still in place. Store your policy documents in a safe and accessible location. If you move or change your contact information, notify your insurance company immediately.
Unoccupied Property
Most insurance policies contain clauses that limit or exclude coverage for properties that are left unoccupied for extended periods. The definition of “unoccupied” varies from policy to policy, but it typically refers to a period of 30, 60, or 90 consecutive days. If your property is unoccupied for longer than the specified period, your coverage may be reduced or suspended.
Inform Your Insurer of Extended Absences: If you plan to leave your property unoccupied for an extended period, notify your insurance company in advance. They may require you to take certain precautions, such as having a neighbour check on the property regularly, turning off the water supply, or installing a security system. They may also charge an additional premium for the increased risk. Also be mindful of water pipes freezing during winter if you are away for extended periods.
Damage Caused by Pests or Animals
Damage caused by pests such as rodents, insects, or birds is generally excluded from standard property insurance policies in New Zealand. This is because pest infestations are often considered a maintenance issue. Similarly, damage caused by domestic animals (e.g., pets chewing on furniture) is also typically excluded.
Implement Pest Control Measures: To prevent pest infestations, maintain your property properly. Seal any cracks or holes in the foundation, walls, and roof. Keep your property clean and free of food scraps. Trim trees and shrubs away from the house to prevent pests from gaining access. If you suspect a pest infestation, contact a professional pest control company immediately. For domestic animals, take steps to prevent them from causing damage (e.g., providing them with appropriate toys and training, keeping them confined to certain areas of the house).
Practical Steps to Avoid Claim Denials
Beyond understanding the common reasons for claim denials, here’s a summary of actionable steps you can take to protect yourself:
- Read your policy carefully: Thoroughly understand your policy wordings, including the exclusions, conditions, and limitations.
- Maintain your property: Implement a regular maintenance schedule and address any issues promptly.
- Review your sum insured annually: Ensure your sum insured is adequate to cover the full cost of rebuilding your home.
- Be honest and transparent: Disclose all relevant information to your insurance company.
- Document damage promptly: Record any damage with photos and videos.
- Pay your premiums on time: Set up automatic payments to avoid policy lapses.
- Inform your insurer of extended absences: Notify your insurance company if you plan to leave your property unoccupied for an extended period.
- Seek professional advice: If you have any questions or concerns about your insurance coverage, consult with an insurance broker or financial advisor.
Navigating the Claims Process Effectively
Even if you take all the necessary precautions, you may still need to file an insurance claim at some point. Understanding the claims process and knowing how to navigate it effectively can increase your chances of a successful outcome.
Reporting the Claim
Report the claim to your insurance company as soon as possible after the damage occurs. Be prepared to provide details about the nature of the damage, the date and time it occurred, and any other relevant information. Take photos and videos of the damage to support your claim. Mitigate further damage by taking reasonable steps to protect your property.
Working with Loss Adjusters
In some cases, your insurance company may appoint a loss adjuster to assess the damage and determine the amount of the claim. A loss adjuster is an independent professional who acts on behalf of the insurer. Cooperate with the loss adjuster and provide them with all the information they need. If you disagree with the loss adjuster’s assessment, you have the right to obtain your own independent assessment.
Gathering Evidence
Gather as much evidence as possible to support your claim. This may include photos, videos, receipts, invoices, and expert reports. Keep a record of all communications with your insurance company and the loss adjuster. If you have any witnesses to the damage, obtain their contact information and ask them to provide a written statement.
Understanding Your Rights
As a consumer, you have certain rights when dealing with insurance companies in New Zealand. The Insurance & Financial Services Ombudsman (IFSO) provides a free and independent dispute resolution service for insurance disputes. If you are unhappy with the way your claim has been handled, you can file a complaint with the IFSO.
FAQ Section
Here are some frequently asked questions about common property insurance claim denials in New Zealand.
Why was my claim denied for gradual deterioration?
Insurance policies typically cover sudden and accidental damage, not damage that occurs gradually over time due to wear and tear or lack of maintenance. If the damage to your property was caused by gradual deterioration, your claim may be denied.
What can I do if my insurance company undervalues my claim?
If you believe your insurance company has undervalued your claim, you can obtain your own independent assessment of the damage. You can also negotiate with the insurance company to reach a fair settlement. If you are unable to resolve the issue, you can file a complaint with the Insurance & Financial Services Ombudsman (IFSO).
My home was damaged in an earthquake. What is covered by EQC and what is covered by my private insurance?
The Earthquake Commission (EQC) provides natural disaster insurance for residential properties in New Zealand. EQC covers land damage up to certain limits and building damage up to a specified amount. Your private insurance policy provides top-up cover for events above the EQC caps and also covers contents. Check your policy wording for specific details of coverage.
I didn’t disclose a previous claim when applying for insurance. Can my policy be cancelled?
Yes, failing to disclose relevant information, such as a previous claim, can invalidate your policy. Insurance companies rely on accurate information to assess risk and determine premiums. If you intentionally or negligently withhold information, your policy may be cancelled, and your claims may be denied.
What if my insurance company unreasonably delays processing my claim?
Insurance companies have a duty to process claims in a timely and fair manner. If your insurance company unreasonably delays processing your claim, you can file a complaint with the Insurance & Financial Services Ombudsman (IFSO). The IFSO can investigate the complaint and order the insurance company to take appropriate action.
References
- Earthquake Commission (EQC)
- Insurance & Financial Services Ombudsman (IFSO)
Don’t leave your home and financial security to chance. Take proactive steps to protect yourself from potential insurance claim denials. Regularly review your policy, maintain your property diligently, and seek professional advice when needed. By understanding the common pitfalls and taking preventative action, you can enjoy peace of mind knowing that you’re well-protected.
