Home insurance policy: Know coverage nuances to avoid claim surprises

Some risks are covered, others require purchase of add-ons, and yet others are completely excluded

Dheeraj Khanna took a ₹29 lakh home loan from Aditya Birla Housing Finance. He also bought a “House Protection Insurance” policy from Liberty General Insurance. His flat later developed serious damage, including subsidence of flooring, damage to roof paint, and sinking bathroom tiles. He carried out repairs and filed a claim for ₹6.18 lakh. He also reported a separate 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 decision. The District Commission had treated the damage as seepage. The State Commission, however, held that the damage resulted from internal leakage, which the policy did not exclude. It also held that the insurer had failed to prove that an exclusion applied in this case. The Commission awarded ₹3.86 lakh, along with interest, compensation, and costs. It, however, upheld the rejection of the theft claim because Khanna had delayed filing a police complaint.

 

Seepage vs leakage

 

The ruling underlines the importance of finer distinctions in policy terms, such as between seepage and leakage. Home insurance policies usually exclude seepage but cover leakage.

 

“Seepage refers to gradual, long-term moisture intrusion from external sources, whereas internal leakage refers to sudden or accidental damage arising from the failure of pipes or water-related apparatus concealed within the structure,” says Nihal Bhardwaj, counsel, SKV Law Offices.

 

“Homeowners can challenge rejection if an insurer classifies a sudden plumbing failure as seepage without providing technical proof,” says Abhishek Kumar, Sebi-registered investment advisor and founder, SahajMoney.com.

 

Insurer must prove exclusion

 

The ruling also reinforces a key legal principle. “The burden of proving that a claim falls under an exclusion clause is strictly upon the insurer,” says Supriya Majumdar, partner, Elarra Law Offices.

 

Shashank Agarwal, founder, Legum Solis, cites an example. “For instance, if arson is excluded, the insurer must prove it was a deliberate act by the insured,” he says.

 

What policy covers and excludes

 

Cases such as the one above underscore the importance of understanding policy inclusions and exclusions. Burglary with evidence of forced and violent entry is usually covered. “If these conditions are absent, the claim is typically repudiated,” says Bhardwaj.

 

This policy does not cover theft by a family member, domestic staff, or a business employee. “The owner should file a police First Information Report (FIR) immediately after discovering the burglary or theft and notify the insurer immediately,” says Shankar Ram Annur, senior vice president, Anand Rathi Insurance Brokers.

 

Damage due to fire is covered. “But if the loss is caused by burning of the insured’s property by the order of a public authority, it is not covered,” says Shilpa Arora, co-founder and chief operating officer (COO), Insurance Samadhan. Policies may also exclude fires caused by electrical breakdown unless the buyer has bought an add-on cover.

 

“Loss due to landslide or rock slide is covered, but normal cracking, losses due to defective design and workmanship, and defective material are not covered,” says Arora.

 

Home insurance policies also exclude damage caused by neglect, poor maintenance, normal wear and tear, and rusting and corrosion. They also exclude wilful and criminal acts by the insured, or with the insured’s connivance. Damage caused by war, nuclear event, invasion, or terrorism is also excluded. Cash or jewellery beyond sub-limits is not covered either.

 

Mistakes to avoid during purchase

 

Buyers should understand the distinction between which losses the policy covers, which need add-ons, and which it excludes.

 

Insurable interest is critical. The owner of the house should be the one who buys the policy. “This will ensure there is no confusion or ground for claim rejection,” says Kapil Mehta, co-founder, SecureNow Insurance Broker.

 

Buyers should understand the difference between reinstatement value, which reflects the cost of rebuilding the house, and market value, which reflects the depreciated value of the structure. Many insure the house at market value instead of reconstruction cost. “This can lead to pro-rata settlement, where only part of the loss is paid,” says Kumar.

 

Buyers should disclose material facts such as pre-existing structural issues and renovations. Failure to do so can invalidate the policy. “Buyers should declare features such as basement and terrace to avoid ambiguity,” says Mehta.

 

Commercial activity on the premises can prejudice a claim and must be disclosed. Those who buy cover for household contents should list valuable items separately.

 

Finally, buyers should read the policy carefully and follow its conditions. “This will enable them to raise claims on time and in accordance with policy conditions, leaving no scope for repudiation,” says Agarwal.

 

The writer is a Mumbai-based independent journalist.

 

Dos and don’ts for making a claim

 

·         Take reasonable steps to mitigate loss

·         Do not repair damage before the surveyor’s inspection

·         Inform the insurer promptly about the damage or loss

·         Keep adequate proof of loss and contents, such as photos, videos, receipts, and pictures of household items