Monday, April 11, 2022

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When is a flood not a flood?

Communities across parts of Australia’s East Coast are again battening down the hatches as torrential rains cause further devastation to businesses and homes, following the March flood event.

Eventually, the question of insurance cover is raised, and the main issue becomes what damage has been caused by a Storm and what was caused by a Flood? Crucially, flood damage is often excluded from policies or offered on an ‘opt-in’ basis. It is easy to disappear down a rabbit hole on the issue of flood vs storm, and it can become a chicken and the egg type of argument (the flood caused the damage, the rain caused the flood, a storm caused the rain…).  But how do insurers determine what a storm or flood event is, particularly where it is not immediately clear?


Most policies have specific definitions of Flood events, which mainly describe a Flood as water escaping the confines of a natural or man-made watercourse onto normally dry land.  The complexity arises when the water itself has not broken the banks of a river, but significant rainfall (from a storm), any pooling of water, and/or inundation of water into properties causes damage. This can include entering/escapement through drainage systems.  In contrast, a Storm is typically defined as an atmospheric disturbance often accompanied by strong winds, rain, lightning, hail, snow, or dust.

Storm coverage is widely available and is considered a standard insurance cover.  Apart from instances such as a Named Cyclone, policies rarely have limits or sub-limits for a Storm.  The opposite is true when it comes to a Flood.  Flood cover is often excluded or if available, policyholders must ‘opt-in’, pay the additional premium, and their policy will include sub-limits.


During the 2011 Brisbane Floods, large areas of the city were inundated with water, covering roads and underground car parks. The water did not breach the bank of the Brisbane River like a traditional flood. Instead, the water made its way through drainage systems, colliding with rainwater and gushing through the stormwater drains. This combination caused a backflow of the drainage system and the water escaped from stormwater drains. Most insurers classified this as a Flood event, which left thousands of policyholders either underinsured or without a viable insurance claim.

Many outraged brokers and policyholders argued the cause of the devastation was surface run-off from rain (which is insured under most policies) and therefore the losses should have been covered.

The issue here is what insurers call proximate cause. That is, when determining the cause of a loss, insurers look for the most direct line between cause and effect. Where there are a few factors at play, they apply the “but for” principle. Following the 2011 Brisbane Floods, insurers determined that the stormwater would not have flowed back into the CBD “but for” the rising river, which escaped the river area and flowed back up the drains. Insurers reasoned that the amount of surface run-off would have been handled by the drainage system if it had not been met with rising backflow from the river.


What position do insurers take if the water that flows into a property is a mix of surface run-off and river water? Unfortunately, this is where a precedent referred to as the “Wayne Tank Principle” comes into play. This Principle is based on the judgement in the case Wayne Tank & Pump Co Ltd v Employers Liability Insurance Corporation Limited, where the judge ruled that if there are two equal and independent causes of a loss, and one of the causes is excluded under the policy, the entire loss is excluded.

The level and breadth of damage across a significant area can make it difficult for assessors and loss adjustors to access these locations, which impacts the determination of proximate cause between storm or flood.

These considerations and complexities in the insurers’ decision-making process often add to the frustrations felt by businesses and communities suffering losses. Despite past Australian insurance industry-wide mandates to clarify flood definitions under policies, many policyholders are still left in the dark.


Please contact your broker to understand if you have flood cover in place or to clarify the level of flood cover you may have. To purchase or adjust your level of flood cover, or if you have sustained a loss and want to submit a claim, please reach out to your broker.

Poppy Foxton
National Head of Corporate Insurance & Risk Solutions

Travis Wendt
Head of Placement

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