Water, Water Everywhere!

William Ross Jr, CPCU, CIC

With Spring comes water. With significant water comes lots of insurance questions, and as with most insurance questions, there's good news, and there's bad news.

Let's face it, your homeowners, condo or business property insurance policy is not the most exciting read. In fact, I strongly recommend it as a sure cure for insomnia. Even though the insurance industry has attempted to simplify their policies and forms to make them more "readable" (don't make me laugh), they're still pretty tough sledding. First they tell you what's covered, then take away chunks of coverage in the form of exclusions, and then give small slices of coverage back with exceptions to the exclusion. You need a scorecard to keep track!

My goal here is to provide a few simple highlights, insights and recommendations regarding exposure to water losses without boring you to tears.

One of the easy rules-of-thumb is damage from water traveling from top-down is usually covered. Damage from water traveling from bottom-up is not. Most homeowners or commercial property policies cover water damage resulting from windstorm. A common example is the wind damages the roof resulting in rain damage to the building interior and possibly the contents. In most instances this type of loss is covered.

Another frequent water loss occurs when ice dams form at the bottom edge of a roof, and water backs up under shingles causing water to run down through the interior damaging walls, ceilings and floors as it travels. Again, water moving from top-down, on today's broader policy forms, is usually covered.

The broader forms of homeowners and commercial property policies also cover damage from bursting or accidental overflow of plumbing, heating, a/c or sprinkler systems. Although the cost to repair the plumbing or heating "system" itself is not covered, the resulting water damage usually is covered. Watch out for an exclusion here – "freezing" isn't covered if the property is vacant or unoccupied, unless you've taken reasonable care to maintain heat in the building or shut off and drain the water from the systems. There we go, giving, taking away, and then giving back again ... remember, I warned you!

Now, when water travels from bottom-up ... most policies have a broad water damage exclusion saying they won't cover the following: flood or surface water, water that backs up through sewers or drains, water below the surface of the ground that exerts pressure on, seeps or leaks through the building or foundation, constant or repeated seepage or leakage of water or condensation over a period of weeks, months or years. The bottom line here is a wet basement is usually not covered – nor is water damage that slowly happens over a period of time.

To make matters worse, there is also a "mold exclusion" in most policies today that excludes coverage for mold, fungi, wet or dry rot, or biological contaminants. A ray of sunshine, however, is most policies give back a limited dollar amount (usually $5000) to cover mold damage which is the result of a covered loss to the property. Of course this is subject to lots of conditions and limitations ... prime bed-time reading.

The good news, you ask? Many preferred homeowners carriers, and even some commercial property policies, now offer an additional rider (for an extra premium) to cover a set dollar limit (usually $5,000) for backup of sewers or drains, and sump pump overflow or failure. If your property holds the potential for this type of damage, check to see if this extra coverage is available and buy it. It's not very expensive to add.

Concerned about flooding? Buy flood insurance. The rates are standardized and underwritten through the National Flood Insurance Program (NFIP), which is backed by the Federal Government. Be aware, unless it is required by a lender for settlement, there is a 30-day waiting period for new flood policies, so don't wait until storm clouds form on the horizon to call your agent.

Also worth noting – even with flood insurance, a wet basement typically isn't covered. Within the flood policy, coverage for areas below ground level is limited to damage to utilities only. You're still on your own for damage to floors, wall coverings and contents for water that comes in through the foundation or basement floor. More questions on flood insurance? An excellent source of information can be found online at www.floodsmart.gov or contact your local independent agent.