A South Island homeowner who claims his property has been damaged by construction work at a nearby housing development was shocked to find his insurance does not cover harm caused by vibrations.
Lawyers spoken to by OneRoof warned his case showed it was just as important to know what was not covered in insurance policies as what was covered, because policies could have many exclusions.
The insurance ombudsman, Karen Stevens, said every year the Insurance and Financial Services Ombudsman Scheme (IFSO) fielded complaints from people disappointed their insurance did not cover what they thought it should.
“My advice is, ‘Take time before you sign’. Keep asking your insurer or broker questions until you fully understand, and always get hold of the policy and work out what will and what won’t be covered.”
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The homeowner who spoke to OneRoof did not want to be identified. He said cracks began appearing in his lounge after diggers arrived at a neighbouring site, sending vibrations through his home.
He said the developer told him to go to his insurance company over the cracks but when he did the insurer said it did not cover “loss caused by vibration, weakening of support or removal of support”.
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The homeowner was at a loss, and was worried about other damage his home may have suffered. He felt he had been left with the responsibility of having to confront the developer on his own.
“The vibrations started as soon as their massive digger started working - the day that started, that’s when the vibrations happened,” the homeowner told OneRoof.
The digger was creating a hole as big as a swimming pool, he said, and the vibrations felt like mini earthquakes.
He was told by his insurer he was covered under EQC for an actual earthquake, but not for damage from the development next door.
The Insurance Council of New Zealand said damage caused by earth movements or vibrations were generally excluded from domestic house insurance policies, and that included damage caused by neighbouring developments or building work.
It also said the onus was on the homeowner to prove the cause of the damage.
Many homeowners are shocked to discover what their insurance actually covers. Photo / Getty Images
Insurance policies have a number of exclusions for certain types of risk or events, including vibrations, a spokesperson said. “Exclusions tend to cover things like risks that are too high or too unpredictable and are difficult to quantify.”
Because the person in this case had no valid claim to their own insurer, the insurance company would not take any action against the builder/developer for the damage caused on the homeowner’s behalf.
A homeowner could, however, contact the contractor/developer and ask what provisions had been made to minimise the risk to their property. “They can also check if the contractor has cover for any damage that may be caused, such as liability insurance. The onus is always on the homeowner to prove the cause of damage.”
The homeowner could ask the contractor to inspect and document the neighbouring properties prior to the work starting and ask them to provide assurance of coverage for damage and record any pre-existing cracks they see, the spokesperson said.
People who were unsure about what their insurance covered could contact their insurance provider or read their policy which would set out what was covered and what was excluded.
Lawyer Karl Robinson, insurance expert for Wynyard Wood law firm, said an insurance policy was just another contract and there was no obligation on an insurer to agree to insure someone. “They can say, ‘No, we don’t want to take on that particular risk’ and you can’t force them to.”
As a starting point, house insurance policies generally covered accidental or unforeseen physical loss or damage, he said. “The two main concepts are the damage needs to an accident – so not intentional, or foreseeable – and it needs to be something physically damaged.”
That broad coverage was then reduced by removing or excluding cover for certain specific causes of damage. “A common example might be damage caused by terrorism or war. So, if a terrorist attack causes damage to your house, say from a bomb, that is potentially going to be excluded.
“There are many other causes of damage commonly excluded. It all depends on the wording of the policy – which people should read.”
Lawyer Joanna Pidgeon advises people to talk to their insurance company at the start of the building process. Photo / Supplied
When it came to damage from a development next door homeowners might have a claim against whoever was responsible for causing the damage, he said. “That might include the council, the landowner or developer, someone involved in the design, or one of the contractors carrying out the work.
“Those people are all likely to have liability insurance covering damage to other people’s houses.
“But, of course, that can be difficult for people to pursue. It can be expensive, time consuming, complicated, and it is much easier if your own house insurance responds.”
Another lawyer, Joanna Pidgeon of Pidgeon Judd, recommended people get a “pre-dilapidation” report the minute they realise any development taking place near them could impact their house.
“It’s a report from someone who, before the work is carried out, records the state of the property so there’s no cracks, no subsidence, no this, that and the other thing.”
That way the state of the property is locked in, but Pidgeon conceded such a report may be costly for the homeowner to wear. This way, however, it should become much easier to prove the work being carried out had caused the problem.
The developer might agree to such a report rather than having an argument later over whether cracks pre-existed or not, she said.
As a DIY measure and to save money, a homeowner could take a dated video and photos themselves. For issues under a $30,000 cap, a case may be able to be taken to the Disputes Tribunal, she said.
She also advised people to talk to their insurance company at the start of a building process and get advice on what was covered and whether there were any top-ups they could get.
Adina Thorn, of Thorn Law, a specialist in property, construction and commercial litigation, said she had taken cases where people had houses affected by vibration from the developer next door, but said she could not say what the result was.
She said the insurance sector in relation to homeowners needed a close look by government, and exclusions, such as for vibration, needed to be made very clear.
“Homeowners in New Zealand are stuck between a rock and a hard place because there’s so many exclusions, not just in house insurance but in all insurance.”
For a lay person to read and understand every word of their home and contents insurance was a big ask, she said. “I mean, it’s about as much chance of you being able to do heart surgery, to be honest.”
Insurance policies did have exclusions – that was the way insurance worked, she said. “They take out this but not this, but people need to know what the not is, in plain language.”
One solution would be to have more robust discussion around exclusions, and for developers to be made to have compulsory and visible insurance. “I think the councils need to be looking at making various people in the chain hold insurance, mandatory insurance, just like most countries when you drive a car you have to have insurance – well, if you build a big building maybe you have to have insurance.”
The Insurance Council’s website outlines common house insurance policy exclusions including damage by insects or vermin, wear and tear, corrosion, rust, rot, mildew, or other gradual deterioration of the home.
Usually excluded also are things like intentional damage by occupants, and damage during cleaning, repair, construction, restoration or structural renovations – though separate or additional building works cover is often available.
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