Introduction

Water damage is one of the most frequent and costly issues affecting strata properties, accounting for a significant portion of all insurance claims. Many owners within a strata scheme operate assuming that their strata insurance will automatically cover any damage caused by a water leak. Still, claim denials are surprisingly common, often leaving the strata community to face substantial and unexpected repair costs.

Insurers can refuse a claim for various reasons, typically citing policy exclusions that distinguish between sudden, accidental events and gradual deterioration or poor maintenance. This guide provides essential information on why a strata insurance claim for water damage might be denied and outlines the practical steps that owners and the strata committee can take when challenging an insurer’s decision.

Common Reasons for Water Damage Claim Denials

Gradual Deterioration, Wear & Tear

Strata insurance policies are designed to cover sudden and accidental damage, not issues that develop over time. A primary reason for insurers to deny a water damage claim is by citing exclusions for gradual deterioration or wear and tear.

If a water leak results from a slowly corroding pipe, rusting components, or the natural aging of building materials, the subsequent damage is typically not covered. Insurers distinguish between an unexpected event, like a pipe bursting suddenly, and a failure that could have been anticipated.

Common policy wordings specifically exclude damage caused by or arising from:

• Rust, oxidation, or corrosion
• Mould, wet or dry rot
• Gradual deterioration or developing flaws
• Fading or concrete cancer

For an insurance claim to be successful, the onus is often on the owners corporation to demonstrate that the water damage was caused by an unforeseen event rather than a long-term, progressive issue. If an insurer’s assessment finds evidence of long-term seepage, such as mineral deposits (efflorescence), they will likely attribute the damage to gradual wear and tear and refuse the claim.

Poor Maintenance & Known Building Defects

Insurers frequently refuse water damage claims for poor maintenance or the non-rectification of known building defects. The owners corporation has a duty to maintain common property, and a failure to do so can void an insurance claim.

If damage results from a known problem that was allowed to worsen over time, the insurer will argue the loss was preventable. Common maintenance-related issues that lead to claim denials include:

Maintenance Issue	Reason for Claim Denial
Blocked Gutters and Drains	A failure to regularly clear gutters and downpipes can cause water to overflow into the building structure. Still, insurers often classify this as a preventable maintenance failure.
Deteriorating Waterproofing	Leaks caused by failing waterproofing membranes in bathrooms or on balconies are typically considered maintenance issues that the owners corporation should have addressed.
Known Defects	If a building has known strata building defects (e.g., faulty construction) and the owners corporation has not taken steps to rectify them, any resulting water damage will likely be excluded from coverage.

Specific Policy Exclusions

Beyond general wear and tear, strata insurance policies contain specific exclusions that can prevent a water damage claim from being paid. The strata committee and owners must know these, as they can vary significantly between insurers and policies.

One of the most significant exclusions is for flood damage. Most standard strata policies differentiate between stormwater and floodwater:

Water Type	Insurance Definition & Coverage
Stormwater	Typically defined as rainwater runoff from sources like drains. Damage from this source is usually covered in standard policies.
Floodwater	Defined as water escaping from natural watercourses like rivers, lakes, or dams. Coverage for this type of damage is often an optional extra that must be specifically purchased.

Other common exclusions that can impact a water damage claim include:

• Damage arising from faulty workmanship, design, or construction
• Water ingress from subterranean or groundwater seepage
• Issues related to specific items, such as flexible hoses, where an insurer may apply an exclusion if the building has a history of claims related to their failure

The Burden of Proof in Strata Insurance Claims

The Insurer’s Duty to Justify a Denial

When a strata insurance claim is lodged for water damage, the initial responsibility lies with the owners corporation to show that a valid claim exists under the policy. However, once this is established, the burden of proof shifts to the insurer if they intend to deny the claim by relying on a policy exclusion.

Insurers cannot cite general clauses like “wear and tear” or “gradual deterioration” without providing clear, expert-backed evidence to support their decision. Under the Insurance Contracts Act 1984 (Cth), the onus is on the insurer to prove its right to rely on an exclusion.

This principle is consistently upheld by the Australian Financial Complaints Authority (AFCA). For instance, in AFCA Case No. 1006744, a claim was approved because the insurer failed to provide sufficient evidence that the damage was due to gradual deterioration rather than a sudden event. The insurer must demonstrate that its specific exclusion applies to the circumstances of the water damage claim.

Evidence & Expert Reports

To effectively challenge an insurer’s denial, the strata committee must be prepared with its compelling evidence. This is crucial for countering the reports provided by the insurer’s assessors, who may not always be qualified specialists for the specific issue.

Engaging independent experts, such as forensic plumbers, roofing engineers, or hydrologists, can provide an authoritative assessment of the cause of the water damage.

Substantial evidence is essential for a successful insurance claim and can include several key items:

Evidence Type	Purpose & Importance
Expert Reports	An independent report from a specialist (e.g., forensic plumber) can directly challenge an insurer’s findings, exceptionally if the assessor was not qualified for the specific issue.
Itemised Invoices and Quotes	A detailed cost breakdown helps to separate the cost of finding the leak, fixing the source, and repairing the consequential damage covered by insurance.
Photographic and Video Evidence	Provides clear, indisputable proof of the extent of the water damage as soon as it is discovered, and before any repairs are undertaken.
Maintenance Records	Detailed logs of maintenance and inspections demonstrate that the strata scheme has been proactive in its upkeep, which helps to counter negligence claims.

What to Do When Your Strata Insurance Claim Is Denied

Challenging the Decision Through IDR & AFCA

When your strata insurance claim for water damage is denied, the decision is not necessarily final. The first step is to ask the insurer to provide their reasons for the denial in writing, which should outline the policy exclusions they rely on. This documentation is crucial for understanding their position and forming the basis of any challenge.

Once you have the written denial, you can initiate a formal complaint through the insurer’s Internal Dispute Resolution (IDR) process. Insurers are required to review the claim and provide a response, typically within 30 days. If the IDR process does not resolve the issue satisfactorily, please escalate the dispute to AFCA. AFCA is an independent body that reviews complaints against financial firms, including insurers, at no cost to the consumer.

Successfully challenging a denial often hinges on the quality of your evidence. To counter the insurer’s assessment, it is wise to:

• Commission independent expert reports from qualified professionals like forensic plumbers or building consultants
• Gather all relevant documentation, including maintenance logs, pre-damage inspection reports, and photographs of the damage
• Itemise repair quotes to clearly distinguish between the cost of locating and fixing the leak versus the cost of repairing the consequential water damage

A key principle in these disputes is that the insurer bears the burden of proof to justify relying on a policy exclusion. AFCA frequently overturns denials where the insurer’s evidence is weak, or they cannot definitively prove that the damage was caused by gradual deterioration rather than a sudden event.

The Owners Corporation’s Duty to Repair

Understanding that an insurer’s denial of a claim does not absolve the owners corporation of its legal responsibilities is critical. Under Section 106 of the Strata Schemes Management Act 2015 (NSW), the owners corporation has a strict, non-delegable duty to maintain and repair the common property of the strata scheme.

This legal obligation exists entirely separate from the outcome of any insurance claim. Even if an insurer refuses to pay for water damage because of a policy exclusion like “wear and tear” or “lack of maintenance,” the owners corporation must still do the necessary repairs to the affected common property. For instance, if a common property roof membrane fails and causes a leak, the owners corporation is responsible for fixing the membrane, regardless of the insurance outcome.

If the owners corporation fails to fulfil this duty, a lot owner who has suffered loss or damage can seek compensation. The appropriate action is to file an application to resolve the strata dispute in NCAT. This tribunal can issue orders compelling the owners corporation to:

• Perform the necessary repairs
• Compensate the owner for resulting damages

The owners corporation cannot simply state that because the insurance claim was denied, it is not responsible for the repairs.

Protecting Your Property & Preventing Denials

Implementing a Preventive Maintenance Program

A proactive and well-documented maintenance program is the most effective strategy to prevent water damage and avoid common reasons for strata insurance claim denials. Since many water-related issues are preventable, a consistent upkeep schedule demonstrates that the owners corporation is fulfilling its responsibility to maintain the common property.

Identifying and addressing potential problems before they escalate can significantly reduce the risk of costly water damage and strengthen your position in future insurance claims.

To protect your strata property, the owners corporation should implement a comprehensive maintenance plan that includes several key actions:

For the Owners Corporation:

• Regular Building Inspections: Conduct routine inspections of the entire building to identify and address issues before they escalate, demonstrating proactive upkeep.
• Roof and Gutter Maintenance: Engage professionals to regularly clean roofs and gutters to prevent water overflow that can penetrate the building structure.
• Plumbing and Pipe Checks: For older buildings, test water pipes and consider installing pressure-limiting valves to reduce stress on the plumbing system.
• Waterproofing Audits: Regularly inspect waterproofing membranes in high-risk common areas like balconies, as failures are often classified as a maintenance issue.

For the Lot Owners:

• Inspecting Flexi Hoses: Regularly check flexible hoses on dishwashers, washing machines, and sinks, as these have a limited lifespan and are a common failure point.
• Maintaining Internal Seals: Ensure sealants around showers, baths, and sinks are intact and not showing signs of degradation to prevent internal leaks.
• Reporting Issues Promptly: Immediately report any signs of water leaks, changes in water pressure, or damp spots to the strata manager to enable a swift response.

Keeping Detailed Records to Support Claims

Maintaining thorough and organised records is crucial for successfully lodging and defending a strata insurance claim. When an insurer denies a claim by citing gradual deterioration, detailed documentation can provide the necessary evidence to challenge their assessment and prove that the damage was sudden and accidental.

These records are a historical account of the property’s condition and the strata committee’s diligence in maintaining the common property.

To build a strong foundation for any potential water damage claim, your strata scheme should keep meticulous records of all maintenance and repair activities. This documentation is your best defence against an insurer’s arguments.

Essential records to maintain include:

• Maintenance Logs: A detailed register of all inspections, maintenance, and repairs, including dates, contractors, and work descriptions, to prove diligent upkeep.
• Expert Reports and Surveys: All reports from consultants, engineers, or plumbers. A pre-damage report showing an area in good condition is strong evidence against a “wear and tear” denial.
• Photographic and Video Evidence: Documents the property’s condition at the time of the incident, providing indisputable proof before any repair work begins.
• Itemised Invoices and Quotes: A detailed breakdown of costs that separates the expense of finding the leak, fixing the source, and repairing the consequential damage.

Conclusion

Strata insurance claims for water damage are frequently refused due to policy exclusions like gradual deterioration or poor maintenance, leaving many strata properties unprotected. However, owners can successfully navigate disputes and protect their strata scheme by understanding the insurer’s burden of proof, implementing preventative maintenance, and knowing how to challenge a decision.

Contact PBL Law Group’s expert strata lawyers today if you are facing a denied water damage claim or need guidance on your owners corporation’s legal obligations. Our specialists offer the trusted expertise required to navigate complex insurance disputes and protect your rights, ensuring you achieve peace of mind.

Frequently Asked Questions (FAQ)