After weeks of record-breaking temperatures and oppressive humidity, much of the country is looking to cool off. Swimming pools are perfect for beating the heat, but they can also present some insurance complications.
Such was the case for an FC&S subscriber's client, who was insured by a homeowners' policy form HO-3. The client's above-ground swimming pool collapsed because of deterioration. Water escaped and seeped into the basement of the residence through the walls and back door, causing damage to the building.
Q. Does the water-damage exclusion on the HO-3 void coverage for this type of loss?
A. Under previous iterations of the HO-3, an argument could be made for coverage for damage to the building from this cause. The water-damage exclusion on older versions of the form voided coverage for damage from natural occurrences of water, such as floods, surface water and backed-up sewers.
Even though the pool water traveled over the surface of the ground to reach the home and damage it, surface water generally is held to be water “which is diffused over the surface of the ground, derived from falling rains or melting snows, and continues to be such until it reaches some well-defined channel in which it is accustomed to flow and does flow with other waters.”
This definition was used in Georgetown Square v. United States Fidelity and Guaranty Co., 523 N.W.2d 380 (1994). However, the 2011 version of the form added the following wording: “This Exclusion A.3. [Water] applies regardless of whether any of the above, in A.3.a. through A.3.d., is caused by an act of nature or is otherwise caused.”
By adding “or is otherwise caused” to this exclusion, the type of loss described would no longer be covered. The form also now states that the water exclusion applies to the escape, discharge or overflow—for any reason—of water or waterborne material from a dam, levee, seawall, or any other boundary or containment system, which would include an above-ground pool.
Q. While that addresses damage caused by the escape of water, what about the water itself?
A. A country club with a business owners policy (BOP) experienced a loss when a pipe leading from the swimming pools broke and water was lost out of the pools.The insurer denied the claim, citing the provision that “covered property does not include… land (including land on which the property is located), water, growing crops or lawns.”
Q. Does the water lost by the insured fall under this limitation?
A. If one reads the word “water” in this limitation in context, then it is listed along with other things that occur in nature—land, growing crops, and lawns. The water lost from the pools is not naturally occurring water, such as a stream or a pond on the insured's premises.
The water that the country club lost because of the plumbing failure could be considered the club's personal property. It had already passed through the water meter, and the club was billed for it. It should be a covered loss under the BOP.
Read more about other types of swimming-pool claims and how adjusters handled them by visiting FC&S staff blog posts at the Coverage Café on www.PropertyCasualty360.com
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