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In our December 2011 edition of Insurable Interest, we reported on the passing of the Insurance Contracts Amendment Bill 2011 which provided for the implementation of a standard definition of flood, and the requirement that insurers provide a Key Facts Sheet with home insurance policies.
To this end, on 19 June 2012 the Insurance Contracts Regulations 1985 were amended to prescribe a standard definition of flood for certain insurance contracts. Insurance contracts affected by the amendments cover home buildings and contents, damage to strata title residences (such as apartments), and loss of equipment, stock, inventory or premises of a small business. However, if the insurance contract was arranged by an insurance broker, who did so in the course of providing financial advice, the prescribed definition will not apply.
Flood is defined as:
"the covering of normally dry land by water that has escaped or been released from the normal confines of any of the following:
- a lake (whether or not it has been altered or modified);
- a river (whether or not it has been altered or modified);
- a creek (whether or not it has been altered or modified);
- another natural watercourse (whether or not it has been altered or modified);
- a reservoir;
- a canal;
- a dam."
The meaning of canals and modified natural watercourses will include infrastructure such as irrigation canals and drainage systems that have been constructed using natural contour lines or existing watercourses. However, stormwater systems such as street gutters and underground sewage systems are not considered to be canals or modified natural watercourses under the definition.
This definition is to apply to every contract of insurance (described above) even if the policy wording says otherwise. However, if a contract provides cover in respect of loss caused to a business and the insurer proposes giving flood a different definition, it must take 'reasonable steps' to ascertain that the business is not a 'small business'. Such steps will require the insurer to consider all relevant information obtained from the insured when the contract is entered into.
The amendments will come into force on 19 June 2014 to allow insurers sufficient time to update relevant documents and implement the necessary changes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
