Preserving insurers’ recovery rights following escape of water

According to statistics provided by the ABI, Escape of Water (EOW) costs continue to increase, including a staggering 50% rise in claims costs over three years.  The increase in costs associated with domestic claims is particularly stark - the average claim is now £2,670.  For commercial EOW claims, the first quarter of 2017 was the second most expensive quarter on record, with £70m incurred.

The UK is no stranger to prolonged cold snaps during the winter months. The effect of weather upon domestic service pipes can be devastating, for:

• The customer, who suffers extensive property damage, and
• Insurers, who inevitably pick up the bill.

A burst pipe can result in as much as 400 litres of water escaping every hour (equating to two full baths). Even the smallest leak can cause significant damage. With ‘trace and access’ coverage to add to repair bills, costs can soon escalate.

We note that many insurers are reporting ‘spikes’ in escape of water claims. With repair costs spiralling and the opportunities for pursing successful recoveries reducing, the costs burden felt by the insurance industry is a major concern for the future. Escape of Water claims continue to be the most expensive peril for domestic property insurers.

It’s not just cold weather that leads to increasing claim costs. The streamlining of claims processes, by way of home emergency cover and the like, and the implementation of additional consumer legislation, has affected the evidence gathering process. In turn this has led to a decrease in successful recovery actions.

In this blog we examine what practical steps insurers can take to preserve their recovery rights when escapes occur.

Recovery challenges

One word. Evidence.

When escapes occur, customers’ immediate response is usually to call out an emergency plumber. That emergency plumber may be:

• The same contractor who recently attended to plumbing works / fitted the new boiler / installed the new central heating system / bathroom / kitchen.
• An outsourced contractor appointed via home emergency cover.

That immediate response results in either:

• The contractor responsible for the escape being given access to rectify and / or remove the causation evidence from scene (with repair / repeat performance being two remedies available under the Consumer Rights Act 2015), or
• The outsourced contractors not appreciating the value of their first hand causation evidence, or the value of preserving the ‘physical’ evidence for insurers.

Either way, insurers are usually notified of a claim after the escape has ceased and after the emergency plumber has removed the vital evidence required by insurers to pursue a recovery claim.

What can insurers do?

The success of a claim depends solely on the information / evidence available to support it, so what can insurers do to enhance their prospects of pursuing recovery claims against third parties?

• Insist that the terms and conditions applicable to outsourced home emergency service contractors include provision for insurers to be updated on the cause of the escape. Ideally photographic / video evidence of the live escape should be recorded for forensic examination at a later date.
• Insist that all causative parts / pipes etc. must be retained until insurers confirm that they can be disposed of.
• Ensure that first notification of loss handlers (in-house and outsourced) are tasked with making initial causation enquiries.
• Spread the word to policyholders and outsource suppliers that evidence gathering is crucial and that incident parts belong to them, not the emergency contractor.
• Leverage advances in technology. Some insurers are introducing smart technology on high net worth properties which cut off water supply upon detecting increased flow rates and / or significant decreases in temperature - thus preventing or at least limiting the extent of damage caused by leaking pipework.

A case in point

Keoghs often receives escape of water recovery claims where causation evidence is thin on the ground. One case in particular revealed that a local plumbing company had recently fitted a basin unit within the customer’s en-suite bathroom. The customer’s evidence suggested that upon investigation, the origin of the water escape was the newly installed basin.

When the leak was discovered, the local plumbing company were reinstructed to attend and stop the escape. Investigations revealed that the plumbing company had removed the basin and associated pipework and replaced it pursuant to the remedy available to the customer under the Consumer Rights Act 2015.

We spoke with the customer and explained the importance of retaining the evidence, given the possibility that the local plumbing contractor had caused the initial escape. The customer was so incensed that the local plumbing contractor had essentially attended her property and removed the causation evidence, that she attended the showroom and duly took possession of the original basin and pipework. This allowed us to arrange to have the sanitaryware examined forensically and, along with the physical photos and video evidence of the escape taken by the customer, the expert evidence concluded that the escape and resultant damage occurred due to defective pipework. Without that evidence the claim would have been abandoned.

It has to be appreciated that not every escape of water incident leads to a recovery action but in those cases where a recovery action is possible, much more can be done. Some simple tweaks to claims processes designed to enhance the overall prospects of success, can help in recouping some of the £2.5m insurers pay out each and every day.

For more information please contact:

Heather Ford
Associate
T: 01204 677168
E: hford@keoghs.co.uk