Home insurance: Burden of proving exclusion in a claim lies on insurer

If an insurer wants to deny a claim based on an exclusion, it must provide clear evidence that the incident falls under that exclusion

Dheeraj Khanna took a Rs 29 lakh home loan. Along with it, he also purchased a 'House Protection Insurance' policy. However, the flat soon developed serious damage — subsidence of flooring, damage to roof paint, and sinking tiles in bathrooms. He got repairs done and claimed Rs 6.18 lakh from the insurer, Liberty General Insurance. He also alleged a separate burglary/theft incident. The District Commission ruled against him.

 

The State Consumer Disputes Redressal Commission of the Union Territory of Chandigarh (State Commission) partly overturned the District Commission’s judgement. According to the District Commission, the damage had been caused by seepage, which was excluded under the policy.

 

The State Commission, however, found that the damage had been caused by internal leakage, which could not be excluded from coverage. The Commission said that the onus of proving exclusion lay with the insurer, which it had failed to do. Hence, the State Commission ruled that repudiation of the leakage claim amounted to deficiency. It awarded Rs 3.86 lakh plus interest, compensation, and costs. The State Commission, however, upheld the repudiation of the theft claim due to delay in filing a police complaint.

Seepage vs leakage

One subtle but crucial point that the above case highlights is the distinction between seepage and leakage: A home insurance policy typically excludes seepage but covers leakage.

 

Seepage occurs due to the slow and natural penetration of water. It may occur due to cracks that have developed in the roof or walls, allowing rainwater or moisture to percolate. Damage caused by seepage tends to be gradual.

Leakage, on the other hand, occurs due to plumbing failure — the bursting of hidden internal pipes or broken valves. The damage caused by it is sudden and extensive.

 

Homeowners can also challenge rejection if an insurer classifies a sudden plumbing failure as seepage without providing technical proof.

Insurer must prove exclusion

This case brought into the spotlight another major point of law—that the burden of proving an exclusion lies on the insurer. The insurer cannot reject a claim based on vague assertions. If it wants to deny a claim based on an exclusion, it must provide clear evidence that the incident falls within that exclusion. For instance, if it claims that damage due to fire was deliberate, it must prove intentionality.

Key exclusions buyers should be aware of

Common exclusions include damage from war, nuclear perils, and willful destruction by the owner, as well as losses due to regular wear and tear or atmospheric changes.  

 

“Many policies also exclude damage to a property that has been left unoccupied for a significant period without prior notification,” says Abhishek Kumar, Sebi-registered investment advisor and founder of SahajMoney.com.

 

Theft claims often require forcible and violent entry, and the absence of these conditions typically leads to repudiation. “Losses due to defects in construction or material quality are generally outside the scope of coverage,” says Nihal Bhardwaj, counsel, SKV Law Offices.

 

“Cash/jewellery beyond sub-limits also falls under exclusion,” says Shashank Agarwal, founder, Legum Solis.

 

According to Supriya Majumdar, partner, Elarra Law Offices, damage from flood, earthquakes, or ground movement falls under exclusions.

 

Check for unoccupied premises. “Loss or damage occurring when the home is left uninhabited for more than seven consecutive days and nights without prior notification to the insurer falls under exclusions,” says Shilpa Arora, co-founder and chief operating officer (COO), Insurance Samadhan.

Mistakes at time of purchase

A common mistake is not fully disclosing the property’s true condition when buying the policy. “Non-disclosure or misrepresentation gives insurers grounds to repudiate claims later,” says Bhardwaj.

 

According to experts, insurable interest is a major mistake. Essentially, the person who owns the house should be the one who buys the insurance. “If a house is owned by person A, the insurance policy should also be in person A’s name to avoid confusion or claim rejection,” says Kapil Mehta, co-founder, SecureNow Insurance Broker.

 

The sum assured for the house under the property insurance is often incorrectly estimated. Essentially, you have to cover the cost of construction or reconstruction. “Suppose the cost of construction is Rs 1 crore, but you buy insurance for only half a crore, then that will be treated as underinsurance. When the claim comes, you will be paid only 50 per cent of the approved claim,” says Mehta.

 

Another mistake is underinsuring the property or failing to update the sum insured after renovations or the purchase of new contents. “Buyers often miss add-ons like plumbing or electrical cover and overlook policy exclusions, leading to claim disputes,” says Bhardwaj.

Mistakes when filing a claim

The claim should be notified to the insurer immediately. “The owner of home insurance should file a police FIR immediately after the burglary/theft comes to notice. The site should be kept as it is, under lock and key, until the surveyor visits for inspection. No repair work should be carried out till the surveyor/insurance company gives the go-ahead,” says Shankar Ram Annur, senior vice president, Anand Rathi Insurance Brokers.

 

“Keep a claim diary detailing the dates, names, and summaries of every conversation with the insurance company to track progress and hold them accountable,” says Arora.

 

Mehta emphasises the need to declare the terrace and the basement. “Declare all property features — like basements or terraces — to avoid exclusions, and carefully review policy warranties to prevent claim disputes,” says Mehta.

 

“Another common error is failing to maintain a detailed inventory of insured items or losing original purchase invoices, making it difficult to prove the value of stolen or destroyed contents,” says Kumar.

 

Policyholders must avoid undertaking repairs before the insurer conducts a survey unless there is an emergency. “If immediate repairs are necessary, detailed documentation and photographs must be taken,” says Bhardwaj. He adds that owners should avoid making inconsistent statements during claim processing, as discrepancies often form a basis for repudiation.

 

Inform the insurer if the house remains vacant for an extended period. “Short 2–3-day trips are fine, but inform the insurer about longer absences. In case of burglary, you must prove it is genuine and report it promptly,” says Mehta.

Dos and Don’ts

Annur emphasises that the owner should take insurance in the same name(s) as the sale deed to avoid any question/dispute regarding insurable interest.

 

“If invoices are unavailable, keep photos of household items to support insurance claims,” says Mehta.

 

The insured must be prompt with their claims. “In case of theft or burglary, a complaint must be immediately made to the police authorities, and the insurance company must be informed promptly for inspection,” says Majumdar.

 

Any changes or renovation work should be brought to the insurer’s attention. According to Annur, the policy should be taken on reinstatement value and not otherwise, to avoid underinsurance at the time of claim. 

Key takeaways for home insurance buyers

• Standard homeowners’ insurance generally does not cover water seepage because it is considered gradual damage or a maintenance issue
• Water leakage refers to accidental escape of water from plumbing systems and is typically sudden and noticeable and is covered by policies
• Damage from internal pipe failures may be covered even if pipes have not visibly burst
• Delaying reporting of a theft claim to the insurer and police can lead to denial
• Insurers must strictly justify exclusions and should not deny claims on arbitrary interpretations
• Buyers should read policy coverage and exclusion clauses carefully
• They should raise claims timely and in accordance with the policy to reduce repudiation risk

  (The writer is a Mumbai-based independent journalist)