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Water crisis and the wider drought

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The FIA has been engaging with the major insurers around the possible impact of the water shortage on insurance claims where fires and or other forms of loss or damage are not able to be reasonably contained due to a lack of water pressure (or no water at all) and also around issues such as possible damage to geysers, piping, swimming pools, etc.

Most policies, with the exception of some crop insurance policies, do not cover losses or damages due to drought or water shortage. However, they do generally include some kind of requirement that insureds take all reasonable precautions to prevent damage. Unfortunately we have not been able to secure the kind of comfort that we would like to have for clients and it seems that any claims will have to be dealt with on a “case-by-case” basis taken into account all relevant details of that risk.

Several of the insurers have issued circulars in this regard. In general, it is noted that there is an onus on insured is to be able to show that they have taken extra precautions in line with policy wordings and in particular imposed “warranties” and risk mitigating requirements such as sprinkler systems at this time of additional risk threat. The nature of such precautions varies.

For example, it would be expected that extra steps should be taken to avoid the possibility of a fire starting in the first place. This means extra attention to staff training, doubling up on fire risk measures, avoiding any hot works wherever possible, and added precautions around electrical maintenance, open fires, smoking controls, stacking, waste control (especially flammable material), etc. Where appropriate, adequate fire breaks should be strictly maintained.

Insurers have also stressed the need for commercial risks to ensure that they have documented proof of ongoing assessments/tests on sprinkler systems to show that they at least remain in working condition. Purchasing and installing a number of added hand-held extinguishers have also been recommended. (It is suggested that closed circuit tests be used as these do not require more water than already in the system.) Fire sprinkler systems should be left in the “open” position unless written instructions are received to the contrary.

If in doubt about larger/more risky sites, it is suggested that you approach the insurer concerned for individual guidance.