What You Need to Know About the Slippery Scenarios of Water Damage and Your Insurance
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Water damage is one of the most common causes of insurance claims for homeowners and businesses. At the surface, water is water...right? Unfortunately, burst pipes, backed up drains, flooded basements or a leaking roof will lead one to discover the details of their insurance policy - finding that all water damage is not the same according to the insurance policy language.
Identifying the cause and source of the water are the most important factors to determine if there is coverage for the damages. This is very important because an insurance policy is a legally binding contract between you and the insurance company. Therefore, the specific policy language determines what kind of water damage will be covered.
What type of water damage is NOT covered by most property insurance policies?
A general rule of thumb with insurance is that it is meant to cover "sudden and/or accidental damages". So, gradual damage or the result of gradual damage typically will not be covered. Some examples of this include:
- mold, rot and/or corrosion
- poor property maintenance or lack of repairs
- normal wear and tear
- water damage from seepage coming from cracks in the foundation
- other long-standing problems like a leaking roof
So what if the water damage is sudden as a result of heavy rains or weather related events? There are also other specific water exclusions that coverage can either be "bought back" on the same policy or you must find an insurer for that specific peril. Some examples include:
- surface water entering from outside the building
- back-up of sewer or drain
- a nearby lake or river overflows its banks which causes flash flooding in your building
The denial of water claims aren't always easy but understanding the specific coverage, exclusions and limitations for water damage can help you prepare.
What type of water damage is covered by most property insurance policies?
After reading through some of the water damage scenarios above that aren't covered, you're probably wondering what kind of water damage is typically covered? Every claim scenario is as unique as the various insurance policies available; but in general, a property policy that includes coverage for "Special Perils" will respond when:
- cold temperatures cause your water pipes to freeze and burst (assuming you haven't left the house unoccupied)
- overflow of an appliance such as a dishwasher, toilet or washing machine
- storms damage your roof and heavy rains cause water to leak through (unless you have had a leaking roof as a result of poor maintenance)
As you can see, coverage for water damage depends on the situation and the source. If it is sudden/accidental and came from inside the property, you most likely will have coverage. In most cases, you can purchase broadened coverage on a homeowners policy, business owners policy (BOP) or commercial property policy with endorsements to provide more coverage for water damage. This coverage can be purchased for:
- Back-up of sewer or drain from inside the building can be purchased and added to your policy.
- Mold and mildew (not a result of neglect) most likely will be covered but may have a limitation built in to the policy.
- Shoreline property such as seawalls, boat lifts, and docks are typically excluded but some companies have special policies for this.
My property isn't in an area that regularly floods, do I need to purchase a separate policy for flood?
First off, virtually every commercial and personal insurance policy will specifically exclude flood damage. You may be wondering, why would I need a flood insurance policy if my property is located in a flood zone? You should consider a separate flood insurance policy to cover these types of claims:
- Ground level or surface water entering the building as a result of municipal storm drains backing up. Water backup coverage mentioned above could apply to water coming up out of a floor drain within the building but not the storm drains outside.
- A cold and snowy winter quickly thawed in the spring which caused flooding and surface water to enter the building.
- A nearby dam or levee breaks causing a body of water to flood a neighborhood or city.
- Flooding as a result of natural disasters like hurricanes or heavy rains.
You can learn more about facts and statistics of the National Flood Insurance Program here.
This basic overview of water damage and insurance can demonstrate that insurance is not a commodity. No matter what type of insurance you're talking about insurance policies and claims are very different. Policies are complicated contracts which is why it is very important to read the policy for subtle changes, exclusions or limitations.
All in all, water damage can be a slippery slope with insurance coverage. That is why having an understanding of what type of damage is covered or can be covered before it happens can help. However, insureds shouldn't be expected to fully understand the complexity of an insurance policy whether it is for your home, auto, business, life or health.
That is why it is why working closely with a good, reputable independent insurance agent is the best place to start. The more coverage you want, the more it will cost. This is similar to choosing "loaded" options on a new pickup truck or a contractor using custom, high-end bathroom finishes. Be prepared to determine what your "pucker factor" is as it relates to the cost of the coverage versus your risk. That is what insurance is all about - managing and sharing risk.
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First posted on TheIsnuranceGeek.com on May 1, 2020
Author: Tyler Bartosh
Sources:
Insurance Information Institute (iii.org)
International Risk Management Institute (IRMI.com)
Water Damage Coverage and Limitations by Roy McCormick - The Rough Notes Company
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/commercial-auto-insurance-rate-hikes-outpace-reductions-in-november-2021-68281770
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