Society of Lloyd's · DRN-6236404

The complaint Ms H has complained about her building warranty provider Society of Lloyd’s (SOL) because it has declined her claim for a defective sewage treatment plant at her property. What happened Ms H owns a rural property which is not connected to mains drainage. The property’s waste-water drains into a treatment plant within the property’s boundary which then drains treated foul water into a soakaway. However, dating back to 2022 issues with the drainage were noted and, following a series of inspections a drainage expert (“B”) determined the soakaway was not suitable. A claim was made to SOL. SOL accepted B’s findings that the soakaway was not suitable. But it didn’t think there was major damage – with that term being specified in the policy – or a risk to health. It also argued that the sewage system was not a drainage system. And so wasn’t a part of the “Housing Unit”, with the warranty offering cover for major damage to the Housing Unit. Ms H argued that as the treatment system, comprising the soakaway, was the only drainage system for her property, it was reasonably part of the Housing Unit. She also argued there was Major Damage. Not least she said because the soakaway itself was flooded, with a flood, in and of itself, being ‘damage’. She said Major Damage would include where there is an imminent risk of damage, which there was here. Also that the policy offers cover where there’s an imminent risk to health and safety, which she said there clearly was here. When SOL would not change its view on the claim, Ms H complained to the Financial Ombudsman Service. Our Investigator was satisfied that the treatment system here could reasonably be considered as the drainage system for the property – so a part of the Housing Unit. But she wasn’t satisfied there was any evidence of physical damage to the Housing Unit. Meaning, in her view, SOL’s decline of the claim on the basis there was no Major Damage, was fair and reasonable. So she did not uphold the complaint. Ms H remained unhappy. She maintained the flood itself was the damage – that it did not have to go on to cause other/additional damage. She said a court judgment supported that there is damage when something floods, such as someone’s living room. So her ‘flooded’ soakaway was suffering physical damage. The complaint was referred to me for an Ombudsman’s decision. I found I was minded to uphold the complaint – I thought the definition of Major Damage had reasonably been satisfied so SOL should consider the claim. Also that it should pay Ms H £150 compensation. My provisional finding were: “My findings will focus on the issue of physical damage, under the Major Damage definition only. I don’t need to review if there is a fault with the drainage system because SOL has

-- 1 of 3 --

accepted there is. And I don’t need to consider if the sewage treatment is a “drainage system” – which is considered to be a part of the Housing Unit – because SOL has not disputed our view that it reasonably is. So, the only remaining question is; is the fault with the drainage system causing physical damage to the Housing Unit. The warranty does not define what is meant by ‘physical damage’. This Service commonly views that an item is damaged if it’s not functioning properly. Here the design of the sewage treatment system included a flawed element – a soakaway installed in an area with a highwater table and clay soil. The treatment plant, as I understand it, is meant to send waste-water into the soakaway. The soakaway then functions as a filtration system, with aerobic bacteria breaking down the effluent, effectively removing pollutants, before the water can ‘soak through’ into the surrounding soil. From the evidence I have seen, the soakaway at Ms H’s property, doesn’t seem to be performing that function. It seems the soakaway is full of water, even when the sewage tank further up the system is emptied, so not discharging into it. That suggests to me that aerobic – oxygen loving – bacteria wouldn’t have chance to thrive – the environment is waterlogged. And from the evidence available it does seem that pollutants are not being effectively filtered by the soakaway and are, in fact, soaking into the soil. B’s report states that “It’s obvious that the discharge from this treatment plant… is causing pollution to underground waterways” and “some action may need to be taken to clean up the pollution that has occurred”. So, in my view, the soakaway is not functioning as it should. Which means it is, effectively, suffering physical damage. The soakaway is part of the drainage system, which is part of the Housing Unit. So physical damage has been caused to the Housing Unit. And the cause of that physical damage is the flawed design (defect, fault or failure) of the drainage system (specifically the soakaway part of that system). As such, I think it’s fair and reasonable to say that the Major Damage definition of the warranty has been met. That being the case, I intend to require SOL to consider Ms H’s claim under section 4.3 of the warranty on the basis there is Major Damage to the Housing Unit. I’ve noted above pollution to the land. I also note the warranty does offer some cover, at 5.1, for expenses for remediating contaminated land. I’m not sure if Ms H has made a claim for this at this stage. If she hasn’t but should wish to do so, she should approach SOL to progress that. I appreciate that Ms H was caused some frustration by SOL’s decline, and that she has put in a fair degree of effort to challenge it. And I know she felt SOL did not engage fully with her objections to its initial decline. Ms H hasn’t described any further impact on her and I understand her main worry has been what the financial impact would be if SOL’s claim decline remained. I’m of the view that SOL’s claim decision was unfair and unreasonable. If that had been avoided, then Ms H wouldn’t have suffered the frustration and endured the inconvenience of challenging matters. I think SOL should pay £150 compensation.” Ms H accepted my provisional decision. SOL said it disagreed with it. SOL said that based on a result from an AI engine of “a reasonable definition of physical damage that works well in general, legal, insurance and operational contexts”, it did not agree ‘physical damage’ had occurred. It noted that definition said loss of function alone is not enough – there has to be some tangible, visible or measurable harm too. Here SOL said there wasn’t. The only symptom, SOL said, was waste water was not adequately draining from internal pipes, with impacted flow not equating to structural harm. It said there was no evidence of any breakage, impact, deterioration or physical alteration.

-- 2 of 3 --

What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I thank SOL for sharing the AI engine definition. At this time though this Service has not adopted AI results as determinative for our approaches or decisions. That said, I note the definition shared here suggests there has to some visible, tangible or measurable change. Whilst SOL has sought to suggest nothing like that is happening here, that the only symptom is water sitting in internal pipes, I’d draw its attention back to B’s report. B’s report found pollutants – which are measurable – are leaking into the surrounding soil and have made the well water black – visible. Having considered SOL’s response, I find my view has not changed from that issued provisionally. As such my provisional findings, along with my comments here, are now the findings of this, my final decision. Putting things right I require SOL to: • Consider the claim under Section 4.3, on the basis Major Damage to the Housing Unit has occurred. • Pay Ms H £150 compensation. My final decision I uphold this complaint. I require Society of Lloyd’s to provide the redress set out above at “Putting things right”. Under the rules of the Financial Ombudsman Service, I’m required to ask Ms H to accept or reject my decision before 16 April 2026. Fiona Robinson Ombudsman

-- 3 of 3 --