Homeowners have won a row over a burst underground pipe after the complaints authority found “no compelling information” to show their insurer’s exclusions applied.

It was agreed that the leak caused water to seep into soil under the policyholders’ home, and that the property had suffered damage associated with foundation movements.  

But insurer Hollard said the burst pipe did not cause the damage, and the loss was not covered.

It pointed to exclusions for gradual escape of liquid, building movement and the effects of rainwater once below the ground.

It initially referred to its engineer’s conclusion that the damage “was consistent with long-term footing system movement”.

But this was contradicted by its building consultant, who confirmed the presence of the burst pipe and said damage had been occurring for only about a year.  

The consultant engaged another engineer, who said significant amounts of water had entered foundation soil and there was evidence of movement damage and building sinkage.  

This engineer arranged a floor-level survey, which they said showed moisture entered the foundation through two areas of the building’s slab where external paving had not been sealed. They recommended the two areas be sealed and the site be given about a year to dry before any repairs could be made.  

The Australian Financial Complaints Authority notes this engineer did not test soil or moisture levels on the property, nor the extent of leakage from the burst pipe.  

The claimants’ engineering consultant said the pipe was at the site’s highest point and it affected the entire area when it burst. Their report included a floor-level survey, which revealed major drops in level across the whole building slab not long after the pipe was repaired.  

In its dispute decision, AFCA finds the burst pipe “had a significant impact on the moisture levels of the building’s foundation soils”.  

It adds there is an “absence of any compelling information to show that this building constructed in around 2010 and purchased by the complainants in 2020 presents with a history of movement and associated damage”.

An AFCA ombudsman said: “There is no data, reports, photos or any evidence of the building having experienced previous or long-term movement damage.”

Hollard has been told to accept the claim and pay $3000 compensation for stress caused by its claims handling, plus up to $5000 for any professional fees incurred by the homeowners.

See the ruling here.