What Happens If a Fire or Flood Claim Is Denied?

A Practical Guide for NSW Self-Managed Strata Committees

Fire and flood events can cause extensive damage, unexpected costs, and significant disruption to owners and residents. When an insurance claim is denied — whether partially or fully — the consequences for a self-managed strata scheme can be serious.

Committees often struggle with what to do next:

Who pays? Can the insurer’s decision be challenged? Is the committee liable? Do repairs still need to be done?

This guide explains the practical steps your scheme must take, your rights after a denial, and how to reduce financial and legal risk moving forward.

1. Why Fire or Flood Claims Are Commonly Denied

Insurance companies typically deny claims for one or more of the following reasons:

Policy Exclusions

Some types of flood are excluded, such as gradual seepage, stormwater issues, or overland flow depending on the policy wording. Fire damage may also be excluded if caused by negligence, illegal wiring, or poor maintenance.

Lack of Maintenance

If the insurer believes poor upkeep contributed to the damage — for example, deteriorated waterproofing, blocked gutters, or structural defects — they may decline the claim.

Incorrect Classification of the Event

Insurers may argue the event does not meet the policy definition of “fire,” “flood,” “storm,” or “accidental damage.”

Delay in Notifying the Insurer

If the incident was not reported promptly, insurers may decline due to delayed action causing worsening damage.

Insufficient Evidence

Missing photos, unclear timelines, or a lack of supporting reports can lead to incomplete assessment and refusal.

Pre-existing Damage

Damage that existed long before the event may be excluded even if the triggering event made it worse.

A denial is not final — it is simply the insurer’s initial decision.

2. What the Owners Corporation Must Do After a Denial

Even when the insurer denies a fire or flood claim, the Owners Corporation must still repair and maintain common property.

This means the committee must:

• Review the denial letter carefully
• Confirm whether the insurer is relying on policy wording or maintenance issues
• Arrange repairs promptly to prevent further deterioration
• Consider raising a special levy if the scheme lacks funds
• Provide clear written communication to owners about next steps

Failure to act can lead to additional damage, owner disputes, and breach of legislative obligations.

3. Can the Committee Challenge or Appeal the Denial?

Yes. Denied claims are frequently overturned when additional evidence is provided or the insurer reassesses the situation.

Common pathways include:

Internal Review

Requesting the insurer reconsider the claim with further evidence, reports, or clarifications.

Loss Adjuster Reassessment

A second opinion may be requested, especially if the first assessment appears incomplete or incorrect.

Independent Expert Reports

Engineering, plumbing, electrical, roofing, or fire investigation reports can help demonstrate that the damage should be covered.

AFCA Complaint

Owners Corporations can lodge a complaint with AFCA (Australian Financial Complaints Authority), who may overturn insurer decisions if the denial was unreasonable or inconsistent with the policy.

Appeals are most effective when accompanied by strong documentation.

4. Who Pays for Repairs When the Claim Is Denied?

Responsibility depends on where the damage occurred:

Common Property

The Owners Corporation must pay for all repairs, regardless of whether the insurer pays.

Lot Property

Lot owners generally pay for repairs to their own property unless the insurer’s decision is later overturned and the damage becomes insurable.

Defects or Deterioration

If the damage is linked to maintenance issues, the scheme may be entirely responsible for the costs even if the event triggered the failure.

When large repairs are required, funds may need to be raised through special levies.

5. Can Committee Members Be Personally Liable?

Personal liability is rare but possible in serious cases.

Committee members may face exposure when:

• They fail to maintain the property leading to preventable fire or flood damage
• They delay repairs unreasonably, allowing additional damage
• They fail to notify the insurer promptly
• They provide misleading or incorrect information in the claim
• The insurance policy is allowed to lapse
• They refuse to challenge a denial when advised to do so

Where negligence or misconduct is involved, Directors & Officers insurance may not provide protection.

6. What If Owners Disagree With How the Committee Handles the Denial?

Owners may escalate the issue when:

• The committee refuses to challenge a denial
• Repairs are delayed or ignored
• Communication is unclear or insufficient
• Damage is affecting their lot or ability to live in the building
• They believe the insurer’s decision was incorrect

Owners can:

Request a Meeting

Owners can requisition a general meeting to vote on next steps such as engaging experts, challenging the denial, or approving special levies.

Apply to NCAT

When a committee refuses to act, NCAT can order the Owners Corporation to:

• Repair common property
• Reconsider or escalate the claim
• Commission expert reports
• Reimburse affected owners

NCAT becomes the enforcement mechanism when committees fail to comply with their obligations.

Final Thoughts

A denied fire or flood claim creates stress, confusion, and financial risk — but it does not mean the scheme is left without options.

Key points to remember:

• Many denials can be successfully challenged
• The Owners Corporation must still repair common property
• Expert evidence can change the outcome
• Committees must act quickly and transparently
• Failing to act can expose both the scheme and committee members to risk

Strong documentation and a structured response will minimise conflict and help protect your building.

Strata On Demand Can Help

Strata On Demand supports self-managed strata committees across NSW with more than 30 pay-as-you-go services — no contracts, no ongoing fees, and no full-service management required.

For fire or flood claim issues, the five most relevant services are:

1. Insurance Claim Lodging

We prepare, submit, and manage claims (including appeals), ensuring your documentation is complete and accurate.

2. Drafting Notices & Letters

Clear, legally-informed communication to owners about denials, meetings, funding, or next steps.

3. AGM / EGM Agenda Drafting

Helpful when owners must vote on repairs, special levies, expert reports, or insurance actions.

4. Compliance Health Check

Identifies maintenance gaps, risk areas, and governance issues that may contribute to claim denials.

5. Work Order Management

Coordinates repairs, contractor engagement, and documentation after fire or flood events.

If your committee is facing a denied insurance claim, Strata On Demand can guide the process and reduce the risk of costly mistakes.