A hole in building insurance cover that could leave millions out of pocket

If your pipe bursts and causes damage to a neighbour’s house, your policy might not pay out if you have bought home rather than contents cover.

How would you feel if you received a scary letter from an insurance company accusing you of “negligence” and saying you were legally responsible for paying for repairs to your neighbour’s house?

That’s what happened to 82-year-old Sabata Picone after water leaked from her property into the house next door. The letter she received said that “you have failed in your common-law duty” to prevent damage to someone else’s property and wanted to know how she intended to pay the bill, which could potentially run into hundreds or even thousands of pounds.

The letter was from her neighbour’s insurer, Direct Line. Picone has insurance with Aviva and assumed she would be OK. After all, isn’t a bit of water damage from a burst pipe precisely the sort of thing that home insurance is supposed to cover? However, Aviva refused to help with the claim for the neighbour’s damage, saying that because Picone had buildings cover only, and not contents insurance, she wasn’t covered for “third party liability”.

But if Picone had also been with Direct Line she would have been fine.

It’s a case that is likely to prompt some people to dig out their policy documents to check exactly what they are and aren’t covered for. If you have buildings-only insurance with Aviva and no contents cover, you might want to rectify that ASAP.

Guardian Money can reveal that for Picone a happy ending is in sight – but it’s a reminder that with home insurance, things aren’t always as straightforward as you might think. The Financial Ombudsman Service, which had to intervene in this case, said the distinction between buildings and contents cover “is often not fully understood”. It added: “Consumers can easily believe they are covered for all eventualities when in reality they are not.”

There are thought to be several million people in the UK who don’t have home contents insurance. The industry used to say that about one in four households in the UK didn’t have it. An Aviva report from 2015 estimated that 31% of families didn’t have any contents cover in place.

It’s not mandatory and some people might think they have few possessions of value and so decide to take their chances. But contents insurance isn’t necessarily just about covering the “stuff” you own, as this story shows.

The Italian-born Picone lives on her own in a house in Surrey and speaks little English. Her daughter, Pietruciola Watson, helps as much as she can, but lives in the Scottish Highlands. Watson explained that the stopcock valve blew in her mother’s kitchen last July, though it wasn’t immediately apparent because there was an MDF board in front of the pipework. The incident caused some flooding, prompting Picone to make a claim on her Aviva buildings policy, which it agreed to meet. It later emerged that her neighbour had also suffered some damage and had made a claim on his insurance.

The Direct Line letter that Picone received in February said it had been advised that the damage caused to its customer’s house was “due to your negligence in failing to call out an emergency plumber within a reasonable timescale” to repair the burst pipe. The letter said that if she had insurance for this type of incident, she could make a claim. Alternatively, it added, she must inform Direct Line within 21 days whether she would accept liability “and provide proposals for payment”.

Aviva initially advised Picone that it would deal with the matter, but later rejected the claim. It said that under the terms of the policy contents insurance was required if the policyholder was both the owner and the occupier of the property. Aviva’s buildings insurance only provides public liability cover (i.e., for things such as damage to a neighbour’s house) if the policyholder is the owner but not the occupier. Aviva said that if you were both you would need to take out contents insurance that provided occupier’s liability cover.

Picone – via her daughter – complained to the ombudsman. Watson had arranged her mother’s buildings policy and said that at no point was she made aware of this exclusion or that the cover was limited because she hadn’t taken out contents insurance.

The ombudsman found in Picone’s favour. In a ruling that could be important for others, it said: “It’s not fair to expect a consumer who both owns and occupies a property to fully understand that contents cover is required for third party liability cover to apply.”

It said Aviva should cover Picone for any damages she became legally liable to pay her neighbour as if she’d had the relevant cover.