Diana Clement: Insurance you didn't know you needed

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If you damage someone else's property, the bill could be huge

Falling trees are just one hazard that insurance policies may cover. Photo / Thinkstock
Falling trees are just one hazard that insurance policies may cover. Photo / Thinkstock

If that ancient tree on your property was blown down in the wind and took the power lines or your neighbour's fence down, who would pay for the damage?

Or if a pot on the stove caught fire wrecking your landlord's kitchen, would you be liable for the damage?

For those people with house and/or contents insurance, the answer is usually their insurer - if it can be proved that the insured was somehow negligent.

Home and contents insurance policies don't just cover accidental damage to your property. They contain clauses that provide cover for damage to third-party property. That's property that doesn't belong to you.

Sometimes it's not clear to the lay person when this section of their insurance kicks in. If your roof blows off in a storm and wrecks something in the neighbour's property, your liability cover would come into play if it was proved that you had been negligent because you hadn't maintained the roof adequately, says Steve Warley of the Insurance Brokers Association.

Sometimes very mundane activities lead to liability claims. Examples of claims paid by AA Insurance include:

Someone was out shopping and accidentally let the trolley roll away. It hit a parked car and caused damage. The bill was met under the shopper's contents insurance.

Someone was letting off fireworks, one of which started a fire in a neighbour's compost bin, burning the bin and the side of the neighbour's house. The fireworks lighter's contents policy covered the damage.

Both building and contents insurance policies typically have liability cover, although they are different. At Tower, for example, the Maxi Protection house policy covers "legal liability as owner of your house for claims made on you as a result of accidents at the house which cause property damage". Tower's Maxi Protection contents policy covers "your legal liability for claims made on you as a result of accidents anywhere in New Zealand which cause property damage".

In other words the building insurance policy would cover damage caused by a falling tree where you were proved to be legally liable and the contents policy may cover you for damage caused by smashing your bicycle into a parked car or damaging your landlord's property by accident.

In addition home owners are usually covered through their buildings insurance policies for any amount they are legally required to pay under the Forest and Rural Fires Act 1977. The big but here is usually the amount of cover under the policy. The Vero MaxiPlan policy, for example, limits this to $1 million.

State Insurance general manager Kevin Hughes says people without insurance cover may find themselves having to pay the costs of repairing or replacing damaged property themselves.

Hughes provided two recent examples of expensive gotchas where without insurance the people would have faced huge bills:

A State customer was building a fence and put a spade through a telecommunications cable. Telecom was called to the site to repair the damage. The customer's house (landlord) policy covered the $8000 bill.

A tree on a customer's property was dead and as the homeowner cut it down, the tree collapsed across power lines causing damage. The repair costs totalled more than $5000, all of which was covered by the customer's comprehensive home policy.

An area of liability of particular interests is that for damage caused by pets. Will insurers pay, for example, if your pet attacks another animal?

The Herald reported the sorry tale of Booker the Devonport dog that needed $10,000 of veterinary care after an attack by a great dane. If the great dane owner could have been proved to be negligent he or she may have been legally liable to pay the vet bill, and a contents policy such as the AA Insurance one would pick up the tab. Wardley points out that people whose dogs attack humans may be charged with crimes. Therefore an owner whose dog attacks another animal could be proven to be negligent.

AA Insurance's head of customer relations, Suzanne Wolton, cites the example of a customer who let his dog out in the yard at night unsupervised.

"The yard had a hedge but not a fence and the dog strayed on to the road, causing a car accident," says Wolton. "This was covered by our customer's contents insurance liability cover." The animal itself wouldn't be covered.

Renters, in particular, need to be wary of being uninsured. You may own next to nothing, or leave most of your belongings at mum and dad's house. What students and renters often forget is that they are legally liable for damage they cause to rented premises.

If that damage is deliberate they won't be covered by insurance. But if it's accidental, having liability cover could save them from a huge bill.

Insurance and Savings Ombudsman Karen Stevens cites the case of a group of University of Otago flatmates. One of the students left bacon frying in a pan and went next door to see a neighbour. The pan caught fire and caused extensive damage. The tenants were "jointly and severally liable" for the property under their tenancy agreement.

The landlord's insurance company paid out $150,000 to fix the property and then chased all of the students living in the house to recoup its losses, not just the one that lit the fire by accident. None of the students was insured. Publicity led to the insurance company dropping its case against the innocent tenants.

Wolton cites the case of a tenant of a rented property who caused a fire when a power tool he was using in the garage started sparking.

"The fire burned our customer's contents, as well as the garage, house and some of the landlord's and someone else's contents stored in the garage. The landlord's house was insured. The contents that did not belong to our customer weren't, so was covered by our customer's contents policy."

Another example provided by IAG involved a customer who simply knocked a tap in a rented property that resulted in the flooding of the rental property. The customer's comprehensive contents insurance covered the liability in this situation. Without this insurance in place the tenant may have been liable for costs of more than $13,000 to repair the damage.

Policies that are advertised as being "cheap" or aimed at "students", such as those of Fintel and MAS, still include liability cover. Wardley says the liability cover is often more important for students than insurance for their contents.

Policies do vary in how much cover they offer. Usually it's in the millions. Both Vero's bells-and-whistles MaxiPlan policy and its bare-bones BasicPlan have the same property owners' liability cover. Both offer up to $1 million of liability - which is a common sum. Some insurers may offer up to $2 million.

Damage to other people's property can be expensive and there are plenty of domestic and commercial properties worth more than $1 million. Burn one down and your only option may be bankruptcy.

Liability cover is also included in comprehensive and third-party motor vehicle insurance. The same student who thinks it's not worth insuring his or her belongings might make the same mistake with his or her beloved $200 car. If the car breaks down on a level crossing and takes out one of Veolia's lovely shiny trains, and the driver or owner is proved negligent, the bill could be for the replacement of the locomotive. Ouch. A third-party insurance policy is worth it no matter how little the vehicle is worth.

- NZ Herald

Diana Clement is a freelance journalist who writes about personal finance and careers. She has worked as a journalist for more than 25 years in both New Zealand and the UK. Diana has contributed to a large number of local and international publications. Her pet topic is the secrets of saving money.

Read more by Diana Clement

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