Acting to prevent further loss – what does it mean?

There is a condition in landlord insurance policies that requires the policyholder to ‘act to prevent further loss’. But just what does this mean? Read on to find out…

You know about the domino effect? Well, it can happen when it comes to damage or loss at an investment property too. Say a fierce storm blows in and causes roof tiles or sheets to become dislodged. This leaves a hole in the roof. Rain comes through the roof, soaking the insulation. More rain pours in over the next couple of days causing water to flow down the wall cavity, shorting the electrics. The water also pools in the ceiling, causing a leak or two that damages the flooring. Even more water comes through the hole in the roof in the next week or so, and the weight of the water is too much for the ceiling and it collapses, damaging fittings, fixtures and furnishings in the room below.

Now, if a tarp had been put up over the opening in the roof when the roof tiles were first dislodged, then some of this damage may not have happened. So, putting up a tarp is the equivalent of moving a domino so that it, and all the dominos behind it, don’t topple over.

Doing something to try to stop more damage or loss happening is essentially what is meant by the landlord’s insurance policy condition that the policyholder (or their representative such as a property manager) must ‘act to prevent further loss’ – also known as ‘mitigation’ in insurance-speak.

The duty to act to prevent further loss means it is the policyholder’s responsibility to take steps to minimise additional losses after the initial loss. That does not include taking actions that endanger you or others, or that go beyond your abilities or skills.

Of course, the actions that you might need to take to help prevent further loss will vary depending on the nature of the damage. But here are a few actions that apply to some of the more common situations that arise and may be reasonable to take. 

• Disconnect services 
  
  In some circumstances it may be necessary to disconnect the utilities. For example, if a water pipe has burst, you will need to make sure the water mains are turned off. If there has been a fire, it may be prudent to switch off the gas. If the property is flooded, turning off the power may be required. It might be a good idea to check that your tenants know how to disconnect the services, in case you can’t get onsite quickly.

• Restrict access
  
  If there is substantial damage, for example there has been a fire in a room or a structure like a carport has suffered structural damage, and it could be dangerous to enter, you may need to make sure no-one goes near it. This could mean locking a room or erecting temporary fencing around an unstable structure. 

• Remove debris 
  
  If there is debris such as fallen branches or other obstacles such as pooling water that could lead to more damage, then these should be removed. Other actions may also need to be taken to reduce the risk of loss later on too, for example you may need to dry out wet or damp areas in the rental to stop mould growth after a pipe bursts. 

• Put up a tarp 
  
  If roofs or skylights have been damaged or an opening is allowing water to get inside the property, then it may be necessary to put up a tarp. Only arrange for this once it is safe to do so. It is best to engage a professional to erect roof-top tarps as they are experienced and properly equipped (and insured) to work at height. 

• Board up windows
  
  If windows or glass doors have been broken or cracked, it may be necessary to board over them to reduce the risk of someone being cut or the glass breaking. Depending on the nature of the damage, it may be a safe enough task to do yourself, otherwise get in a professional. 

• Make-safe
  
  Broken glass or other potential health hazards (like water-logged carpet) should be removed. Be sure that you wear appropriate safety gear if you are doing the clean-up. And remember, you should not ask your tenants to do anything that might put them at risk of injury. In some cases, you might need to get a licensed trade to ensure the premises are made safe. 

• Arrange emergency repairs 
  
  Any damage that puts health and safety at risk is likely to be considered an urgent or emergency repair – and these must be addressed within legislated timeframes. EBM RentCover policyholders do not need to get our permission prior to arranging emergency repairs. You just need to keep the tax invoices/receipts to submit with the claim. However, you should not arrange any non-urgent repairs without approval. 

• Move undamaged contents 
  
  To help prevent additional loss occurring, you should move any undamaged contents out of harm’s way, where possible. This could mean moving furniture into another room or lifting appliances from flooded floor level.

It is important that you document all damage to help substantiate any insurance claim. Where practicable, before taking any action to help prevent further loss, take photos or video of the damage. In addition to documenting any damage, you should also document all actions taken to help prevent further loss. You may need to demonstrate what steps you took as part of the claim process.

While this may not be your absolute top priority as you act to prevent further loss, get in touch with your insurer as soon as possible to report the damage. Your insurer can guide you in what to do to help ensure you meet your insurance cover obligations.

So, what can happen if you do not act to prevent further loss? It is important to remember that taking reasonable action to prevent further loss is a condition of the insurance cover and, if you do not fulfill your contractual obligation, then any claim you make could be jeopardised – reduced, or even denied in part or in its entirety.

This is particularly the case when it comes to damage that occurs outside of the initial insured event. In our damaged roof example above, the initial event was the storm and the lifting of the roof materials allowing water ingress that damaged the insultation. The additional damage would be the damage caused later from more water getting in because the roof opening wasn’t tarped or otherwise attended to over the weeks – the fused electrics, soaked carpet and the collapsed ceiling. In this case, it may be determined that the lack of action to prevent further loss caused or contributed to the extra damage and losses, and that the insurer is not obligated to pay for those losses because the policyholder didn’t fulfil their obligation.

It is also important to know that acting to prevent further loss doesn’t only apply to the building and contents section of the insurance policy – it also applies to the loss of rent section. This means that there is an obligation to act quickly to address loss of rent scenarios, such as rent arrears, so that the losses do not spiral.

In summary, acting to prevent further loss is a condition of insurance cover. It means the policyholder (or their representative) must do what is reasonable and within their abilities to help try to stop more damage or loss from happening. If you do not act, your insurance claim could be impacted – your insurer may not cover any additional losses – or even the original loss.

If you have questions about acting to prevent further loss, reach out to a member of our Expert Care team for guidance – 1800 661 662.

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.