Insurance for burnt properties
Question from iain updated on 31st August 2015:
My tenant left a bucket of hot ashes outside on the wooden balcony. The bucket was full to the top. The wind picked up the ashes and set fire to the house. The fire spread to my house which is next door. The insurance won't cover a rebuild. I can't pay the bank because I've lost my income. The tenant has liability insurance for $1 million. If my insurance pays out, I can pay most of my debt that will be around $395,000. I am two houses down. Can I take the tenant to court for the cost to rebuild my house for approximately $500,000 and what are my chances of winning? Can I claim for both properties to be rebuilt?
Our expert Myles Noble responded:
From the limited information given it's unclear if both homes were insured. However, if so, you should be able to claim for the loss to your tenanted property, and also to your home regardless of whether the tenant caused the fire or not.
If either or both claims are accepted, your insurer may try recouping costs from your tenant's insurer under the liability section his/her Contents policy. However, they will need to prove the loss was caused by the tenant being negligent and it was not merely an accident. Should they be found to be liable, their exposure only extends to the indemnity value of your dwelling and not the full replacement cost.
It would pay to check your policy as there may be some benefits you're entitled to, but which haven't been pointed out by your Insurer or their assessor. For example:
- Check if your sum insured is inclusive or exclusive of GST. If exclusive, then the 15% GST can be added to your sum insured of $395,000, which will make a substantial difference to the final settlement figure.
- See if there is a cash settlement option. This might suit as you could build something smaller, but the downside is the insurer would be removed from anything to do with building of the new home and this would become your sole responsibility. Please also check the policy terms around cash settlement as sometimes the settlement amount can be reduced if this option is taken.
- A good home policy will include a "Loss of Rents" benefit to cover income lost as a result of an insured event. If the fire is covered by your policy you may also be entitled to claim some/all of the lost rental income.
- Some policies also include a "stress" benefit which pays a small lump sum (in addition to the sum insured) for stress caused by a total loss. Other policies can include a benefit which pays an additional percentage of the sum insured in the event of a total loss.
While it may also be worth seeking legal advice, this may be costly so I would recommend discussing matters as much as possible with your Insurer in the first instance, as any other action might prejudice your claim.
Lastly, your letter highlights the need to ensure that when you set the sum insured for your dwelling it is sufficient to cover the likely future rebuild costs should you suffer a total loss. A good broker is a good place to start to ensure you have this right.Myles Noble is head of claims and earthquake response for Crombie Lockwood. He also holds various advisory board positions in the insurance industry.