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the insurer has said that they will cover third party damage because the malfunction was unexpected (I gather if the malfunction was expected, they wouldn’t cover me), however, under the Waters Act, because it wasn’t something I could have foreseen or expected, I am not liable to third parties.
While it might seem odd, that is a very important point. You generally can only be liable for things that you have negligently caused. Insurance companies know this, so they will also know that the OC’s requests for payment from you are likely to fail because the OC won’t be able to establish your liability.
It means that, in the absence of any negligence, the OC must repair its own property. Else it must establish your liability in which case you can hand over any such claim to your insurance company who will no doubt write a very stern legal letter back to the OC.
For common property damages where there is no liability, the OC can choose to pay for them itself or claim on its own insurance. Once an insurance claim is made, it cannot also claim any costs from you. That is due to the insurer’s ‘right of subrogation’.