waterdamagequotesWater damage claim declined or cut back: what to check
The phrase in the decline letter points at a provision. Most provisions an insurer can rely on have an answer in the Act, the regulations or the Code — and the complaint route has deadlines worth knowing before you need them.
A decline letter is not the end of a claim. It is the insurer’s statement of which provision it is relying on — and almost every provision it can rely on has an answer somewhere in the Insurance Contracts Act 1984, the regulations under it, or the General Insurance Code of Practice. The work is matching the phrase in the letter to the provision behind it.
A partial payment is a decline too. Most Australian water claims are not refused outright; they are cut back, and a cut-back letter deserves exactly the same reading.
What the letter says, and what it is relying on
| The letter says | What it is relying on | What to check |
|---|---|---|
| “The damage was caused by wear and tear.” | reg 19(2)(b) — wear and tear, rust or corrosion | Whether the escape was sudden even if the part was old. The escape of water is still a listed event; usually only the failed part is out. |
| “The damage happened gradually.” | A policy exclusion, not standard cover | Whether you were clearly told in writing before you bought — s 35(2) puts that burden on the insurer. |
| “This was a flood, and you are not covered for flood.” | reg 34(1) and s 37C | Did the water leave a lake, river, creek, watercourse, reservoir, canal or dam? Were you told in writing, before buying, whether flood was covered? |
| “This flood event has a lower limit.” | s 37D(4)–(5) | Where flood events carry different limits, the highest applies to all of them. |
| “The home was unoccupied.” | reg 19(2)(f) or a policy condition | Which one. The first is scope and s 54 cannot reach it; the second is a condition and s 54 was written for it. |
| “You breached a condition of the policy.” | s 54(1)–(3) | Whether the breach caused any of the loss. If it caused none, refusal by reason only of it is not available. |
| “You did not disclose…” / “You misrepresented…” | s 20B and s 28 | Would they have written the same policy anyway? Was it fraudulent? Did they ask a clear question? Outside fraud the claim is reduced, not avoided — to nil only if they would not have insured you at all. |
| “Storm damage to fences and walls is excluded.” | reg 19(2)(g)(i) | Correct under standard cover. Whether your policy adds it back is on its Key Facts Sheet. |
| “Mould is excluded” / “mould is capped.” | A policy sub-limit | What made the building wet. Mould follows its cause; the cap is on the Key Facts Sheet. |
| “The roof was not damaged by the storm.” | reg 19(1)(a)(xiv) against reg 19(2)(b) | Bureau of Meteorology observations for the day, and a roofer’s written account of what failed. |
| “The claim is fraudulent.” | s 56 | The contract is not avoided. Where only a minimal part is fraudulent, a court may order the rest paid. |
None of these rows tells you that you will win. Each tells you which provision the argument is about, which is the part people get wrong. Your policy wording, its schedule and the evidence decide the rest.
What the insurer owes you with the letter
Written reasons, in five parts
General Insurance Code of Practice, paragraph 81 · 2020 Code, October 2023 update, read 20 September 2026
A denial or a part-payment has to come with the aspects not accepted, the reasons, your right to the information relied on, your right to copies of the reports relied on, and the complaints process.
The reports it relied on, within ten business days
General Insurance Code of Practice, paragraph 82 · 2020 Code, October 2023 update, read 20 September 2026
Copies of the service supplier and external expert reports the insurer relied on, once you ask.
This is the most under-used right in the Code. In a water claim the decisive document is usually a loss adjuster’s scope, a plumber’s report or a hydrologist’s report, and it is common for it to contain an assumption you can correct — a wrong start time, a wrong water source, a missed second event.
Good faith, both ways
Insurance Contracts Act 1984 (Cth) s 13(1) · compilation of 1 March 2024, read 21 September 2026
Every contract of insurance implies a provision requiring each party to act towards the other, in any matter arising under or in relation to it, with the utmost good faith. An insurer that fails to comply contravenes s 13(2A), which carries a civil penalty of 5,000 penalty units.
Insurance Contracts Act 1984 (Cth) s 14(1), (3) · compilation of 1 March 2024, read 21 September 2026
If reliance by a party on a provision of the contract would be to fail to act with the utmost good faith, that party may not rely on it. In deciding that question a court is to have regard to any notification of the provision given to the insured.
The provisions that move the argument
The insurer has to prove it told you
Insurance Contracts Act 1984 (Cth) s 35(2) · compilation of 1 March 2024, read 21 September 2026
The carve-out, and it is the whole game. Subsection (1) does not apply where the insurer proves that, before the contract was entered into, it clearly informed the insured in writing — or the insured knew, or a reasonable person in the circumstances could be expected to have known — that the cover would be less, or that there would be none.
For any event on the standard cover list, it is not enough that an exclusion is in the PDS. The insurer must prove it clearly informed you in writing before the contract was entered into — or that you knew, or a reasonable person could be expected to have known. The fourteen listed events are here.
Doubt is resolved against the insurer
Insurance Contracts Act 1984 (Cth) s 36 · compilation of 1 March 2024, read 21 September 2026
A reading rule, and it runs in the insured’s favour. Where a question arises whether an event is a prescribed event, the relevant provisions of the regulations are to be construed as though they were provisions of a contract put forward by the insurer — which is to say, read against the party that drafted them.
A breached condition is not automatically fatal
Insurance Contracts Act 1984 (Cth) s 54(1) · compilation of 1 March 2024, read 21 September 2026
Where the effect of a contract would be that the insurer may refuse a claim because of some act of the insured or another person after the contract was entered into, the insurer may not refuse by reason only of that act — its liability is instead reduced by the amount that fairly represents the prejudice to its interests.
Insurance Contracts Act 1984 (Cth) s 54(3) · compilation of 1 March 2024, read 21 September 2026
Where the insured proves that no part of the loss was caused by the act, the insurer may not refuse to pay by reason only of the act. Subsection (4) does the same job for the part of a loss the act did not cause.
And the limit on it. The limit on the section. Where the act could reasonably be regarded as capable of causing or contributing to a loss of that kind, the insurer may refuse. This is the subsection an insurer relies on, and it is why s 54 is an argument rather than a guarantee.
Non-disclosure is usually a reduction, not a refusal
Insurance Contracts Act 1984 (Cth) s 20B(1) · compilation of 1 March 2024, read 21 September 2026
Section 20A applies this Division to consumer insurance contracts; the older s 21 duty to disclose every relevant matter sits in a separate Division that s 20E confines to other contracts. So for a home policy bought as a consumer, the duty is to take reasonable care not to make a misrepresentation before the contract is entered into. Section 20B(3) lists what counts in judging that, including how clear and specific the insurer’s questions were.
Insurance Contracts Act 1984 (Cth) s 20B(5) · compilation of 1 March 2024, read 21 September 2026
Nor, merely, is giving an obviously incomplete or irrelevant answer to a question. The word “merely” matters: this protects a gap in the answers, not a misleading answer.
Insurance Contracts Act 1984 (Cth) s 28(1) · compilation of 1 March 2024, read 21 September 2026
Section 28 does not apply if the insurer would have entered into the contract, for the same premium and on the same terms, even if the failure had not occurred. That is the first question to ask of any non-disclosure decline.
Insurance Contracts Act 1984 (Cth) s 28(2)–(3) · compilation of 1 March 2024, read 21 September 2026
Only a fraudulent failure lets a general insurer avoid the contract. Otherwise its liability is reduced to the amount that would put it where it would have been had the failure not occurred. How far that goes depends on what the insurer would have done: if it would only have charged more, the reduction reflects that; if it would not have insured you at all, the reduction can be to nil.
Flood gets two extra protections
Insurance Contracts Act 1984 (Cth) s 37C · compilation of 1 March 2024, read 21 September 2026
Before entering into a prescribed contract the insurer must clearly inform the insured in writing whether the contract covers loss or damage caused by, or resulting from, flood as the regulations define it. Not on request — before.
Insurance Contracts Act 1984 (Cth) s 37D(4)–(5) · compilation of 1 March 2024, read 21 September 2026
Where a prescribed contract sets different maximum amounts for different flood events, those provisions are taken to give a maximum equal to the highest of them, and the insurer may not refuse to pay up to that amount by reason only that the particular event carried a lower limit.
And before either of those, the prior question: was it legally a flood at all? Water that never left one of seven listed water bodies is not, whatever the policy says.
The building does not wait for the dispute
Four digits. Drying is a reasonable step to prevent further loss whatever the insurer decides.
The complaint route, in order
| Step | Time | Source |
|---|---|---|
| Internal complaint decided | 30 calendar days | Code para 147 |
| Progress updates on the complaint | every 10 business days | Code para 146 |
| You may go to AFCA | at any time | Code para 154 |
| Deadline to lodge with AFCA | the earlier of six years from when you became aware of the loss, and two years from the insurer’s final response | AFCA rule B.4.3.1 |
| Most a consumer can be claiming | $1,263,000 | AFCA monetary limits |
| What AFCA’s decision does | binding on the insurer | Code para 156 |
AFCA, how we resolve complaints: it is free to the consumer. Rule B.4.4.2 lets AFCA consider a complaint lodged after that if it considers that special circumstances apply. Do not plan around the discretion.
What not to do first
General Insurance Code of Practice, paragraph 85 · 2020 Code, October 2023 update, read 20 September 2026
Start proceedings in a court or tribunal and the Code’s claims-handling standards no longer apply to your claim. Going to AFCA does not have that effect.
Issuing proceedings switches off the Code’s claims-handling standards; going to AFCA keeps them alive and costs nothing. And do not sign a release on a catastrophe claim in the belief that it ends your options:
General Insurance Code of Practice, paragraph 90 · 2020 Code, October 2023 update, read 20 September 2026
If your property claim came out of a declared catastrophe and was finalised within one month of the event, you can ask for it to be reviewed for up to 12 months from finalisation -- even if you signed a release.
If you are paid late, you are owed interest
Insurance Contracts Act 1984 (Cth) s 57; Insurance Contracts Regulations 2017 (Cth) reg 38 · 2021 compilation, read 20 September 2026
Reg 38 sets the rate by formula off the 10-year Bond yield. It is not something you have to ask for as a favour.
It runs from the day it became unreasonable for the insurer to withhold payment, at a rate set by formula. It is not a favour you have to negotiate.
Meanwhile, the building
A dispute can take months. Wet plasterboard, underlay and subfloor timber do not have months, and water moves up a contamination category with time — why the delay sets the price. Drying is a reasonable step to prevent further loss whatever the insurer eventually decides; keep every invoice, and read the first 48 hours for what to document. What the drying costs is published rates from named companies, so you know what you are carrying while it is argued.
If you are still deciding whether to claim at all, that is a different question with a different page: will a claim raise my premium. And if the decline came from an owners corporation’s insurer, section 48 may let you claim directly.
Why this site has nothing to gain from your answer. We are paid a fixed amount for each enquiry, agreed before it is sent. It does not move with the size of the job, with whether you go ahead, or with which company you pick. There is no version of this page where steering you is worth anything to us — which is also why the page tells you when the answer is that you do not need anybody.
Get the drying quoted while it is disputed
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Here is what happens after you submit:
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- You decide who, if anyone, you use. You are committed to nothing, and this does not lodge, alter or affect an insurance claim.
We are not a restoration company and we do not attend, assess or repair anything.
Common questions
My water damage claim was declined. What should I do first?
Ask for the reasons and the reports in writing. Paragraph 81 of the General Insurance Code of Practice requires a denial to be in writing with the reasons, and paragraph 82 requires the insurer to give you the service supplier and external expert reports it relied on within 10 business days of your asking. You cannot challenge an assessment you have not read.
How long do I have to complain to AFCA?
Under rule B.4.3.1 of the AFCA Rules released 12 March 2026, generally the earlier of six years from when you became aware of the loss and two years from the insurer's final response to your internal complaint. AFCA may consider a later complaint if it decides special circumstances apply.
Does AFCA cost anything?
No. It is free to the consumer and funded by the financial firms that are its members. Its determinations bind the insurer; they do not bind you.
Can an insurer cancel my policy for non-disclosure after a water damage claim?
For general insurance, only a fraudulent failure lets the insurer avoid the contract, under s 28(2) of the Insurance Contracts Act. Otherwise its liability is reduced to what would put it where it would have been without the failure -- and s 28 does not apply at all if it would have written the same policy for the same premium anyway.
Should I go to court or to AFCA?
Read paragraph 85 of the Code first. Starting court or tribunal proceedings switches off the Code's claims-handling standards for your claim; going to AFCA does not. AFCA is also free and its determinations bind the insurer.
Is the insurer allowed to rely on an exclusion it never explained to me?
For standard cover events under a prescribed contract, s 35(2) of the Act puts the burden on the insurer to prove it clearly informed you in writing before the contract was entered into. And s 14 prevents a party relying on a provision where doing so would be a failure to act with the utmost good faith.
Sources cited on this page
- Insurance Contracts Regulations 2017 (Cth)
- Insurance Contracts Act 1984 (Cth)
- General Insurance Code of Practice (2020 Code, October 2023 update)
- AFCA Rules (released 12 March 2026) rule B.4.3.1
- AFCA, monetary limits and compensation caps
- AFCA, how we resolve complaints
Every figure above was read from the source it is attributed to on 20 September 2026. How we check this.