New Zealand’s financial services ombudsman has warned policyholders to be aware of coverage limitations after ruling against a family who wanted their floor level raising in a rebuild after flood damage.

The claimants argued an increase above the minimum height required for building consent was needed to prevent further inundation and to avoid the home being given a natural hazard risk notice by the local council, which would limit their ability to secure insurance or a mortgage.

Their insurer offered to include the upgrade if they could show the council would refuse building consent at current floor levels, but the family did not provide this, saying it was unnecessary because expert evidence demonstrated the flood risk the home would face if the floors were not lifted.

In a decision on the dispute, the Insurance & Financial Services Ombudsman Scheme has backed the insurer’s request.

The authority notes the policy only required the insurer to cover costs that were reasonably necessary for the rebuild and to meet legal or council requirements.

Ombudsman Karen Stevens says insurers are not required “to fund upgrades or improvements that go beyond what is required under the policy.

“While we understand that having a higher floor level would be preferable to reduce future flood risk, and having a notice on the property title warning about flood risk would have significant financial implications ... the IFSO Scheme has no power to require an insurer to make payments outside the terms of the policy, on a goodwill basis.”

Ms Stevens says disputes over who should pay for climate adaptation work are becoming more common.

“This issue is not going away, especially with the number of storms we’re seeing now. There are urgent decisions to be made about how adaptation will be managed and funded.”