Buyers should understand the distinction between the losses the policy covers, those that need add-ons, and those it excludes.
Dheeraj Khanna took a Rs 29 lakh home loan from Aditya Birla Housing Finance.
He also bought a 'House Protection Insurance' policy from Liberty General Insurance.
His flat later suffered damage due to water leakage.
He carried out the repairs and filed a claim for Rs 6.18 lakh.
He also reported a separate theft incident.
The District Commission ruled against him.
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Key Points
- State Commission ruled internal leakage damage must be covered, overturning earlier classification of seepage by District Commission.
- Insurer failed to prove exclusion clause, leading to partial award of Rs 3.86 lakh with additional compensation and interest.
- Theft claim was rejected due to delay in filing police complaint, highlighting importance of timely reporting.
- Policies typically exclude seepage but cover sudden internal leakage, making technical classification crucial in claim approvals.
- Experts advise careful policy understanding, full disclosure, and correct valuation to avoid claim rejection and under-settlement.
Leakage vs Seepage Explained
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 had to cover.
It also held that the insurer had failed to prove that an exclusion applied in this case.
The Commission awarded Rs 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 underscores the importance of understanding the finer distinctions in policy terms, such as between seepage and leakage.
Home insurance policies usually exclude seepage but cover leakage.
"Seepage refers to the gradual, long-term moisture intrusion from external sources, whereas internal leakage refers to the 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 a 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 reinforced 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.
"If, for instance, arson is excluded, the insurer must prove it was a deliberate act by the insured," he says.
What policy covers and excludes
Burglary with evidence of forced and violent entry is usually covered.
"If these conditions are absent, the claim is typically repudiated," says Bhardwaj.
But this policy does not cover theft by a family member, domestic staff, or a business employee.
"The owner should file a First Information Report (FIR) with the police and notify the insurer immediately," says Shankar Ram Annur, senior vice president, Anand Rathi Insurance Brokers.
What Home Insurance Covers
Damage due to fire is covered.
"But if the loss is caused due to 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, Insurance Samadhan.
Policies may also exclude fires caused by electrical breakdown unless the buyer bought an add-on cover.
"Loss due to landslide or rock slide is covered, but normal cracks, losses due to defective design and workmanship, and defective material are not covered," says Arora.
Home insurance policies also exclude wilful and criminal acts by the insured.
Mistakes to avoid during purchase
Buyers should understand the distinction between the losses the policy covers, those that need add-ons, and those it excludes.
Insurable interest is critical: The house owner should be the one to buy 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 cost of rebuilding the house, and market value, which reflects the structure's depreciated value.
"Insuring the house at market value 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.
"They should declare features such as basement and terrace," says Mehta.
Finally, read the policy terms carefully.
"This will enable you to raise claims on time and in accordance with policy conditions," says Agarwal.
Mistakes Buyers Must Avoid
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
- You can post your insurance related questions HERE
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Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Feature Presentation: Ashish Narsale/Rediff
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