Damage from burst pipe and dampness

Question from Elaine updated on 14th February 2014:

Our tenant has lived badly causing damp by condensation and also the flat above has had a burst pipe which has caused a wet wall ceiling down floor damage. Our landlords insurance is trying not to pay for most of the damage due to our tenant, we have tenant liability and pollution and contamination, where do we stand?

Our expert Leanne MacKenzie responded:

For the purposes of our response I will interpret  “our tenant has lived badly…” as meaning he/she did not provide adequate ventilation, resulting in the “damp by condensation”.  Damage caused by rot, mildew, mould etc is a common exclusion under home policies (including owner occupied homes) therefore it is unlikely your policy will cover dampness. These losses may be costly to rectify and another reason to not let those regular (albeit often dreaded) inspections slip. Whilst it may be difficult to prove the tenant caused the dampness, an alternative avenue to consider is the Ministry of Business, Innovation and Employment as you may be able to source suggestions on how to approach your tenant for reimbursement of costs and/or ways to manage this in future.
The burst pipe issue is complex to advise on without policy details and with minimal information. So I can only provide a general response. If your insurance policy is comprehensive (i.e. covers “sudden and accidental damage”) and the bursting of the neighbours’ pipe was a sudden event (i.e. it did not happen slowly over time) then your policy should respond. However if the damage happened over time, cover may only apply if your policy has a “Hidden Gradual Damage” benefit (or similar) and if the pipe also serviced your property. If your insurance policy is not comprehensive (i.e. it only covers specific perils), there may be no cover at all – even if the pipe bursting was sudden. If your policy doesn’t provide cover, and the pipe doesn’t service your property then depending on the circumstances of the damage, you may be able to recover your costs from your neighbour and/or their insurance. This may also depend on whether your neighbour acted “negligently”.
Finally, the “tenant liability and pollution and contamination” referred to are most probably not relevant to either claim. Tenant liability generally provides protection for liability claims your tenant makes against you for negligence, causing them a loss while living in your rental. Pollution and contamination are generally policy exclusions, and even if your policy does provided this cover, it most probably will not apply to ether of your circumstances.
These awful predicaments illustrate the importance of researching the market, as policies can differ greatly. They also highlight the value of a good insurance broker to ensure the best protection for your investment and also assistance in handling tricky claims situations such as these. I hope the above is of help to you and sincerely wish you the best of luck.

Leanne MacKenzie has over 25 years experience in the New Zealand personal property insurance industry. As personal lines manager for Crombie Lockwood she has been instrumental in introducing the important changes that have been made in the sector over the last 12 months. “Every property owner owes it to themselves, as a landlord and a homeowner, to understand the new regime.” Leanne is based in the company’s national office in Auckland.

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