When water destroys with a trickle instead of a flood

Analysis brought to you by the experts at FC&S Online, the recognized authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins.

Question: We are working a claim where tenants occupied the property.  The original tenant sublet the property (without landlord consent). The second tenant vacated the property.  The first tenant returned and noticed that there was standing water.

The landlord maintains that he checked the property’s exterior roughly every 30 days, and the interior was inspected three months prior to discovery.

The first tenant notified the landlord of standing water.  The landlord contacted mitigation upon discovery.

There was a pot under sink, where the leak likely occurred, and dry rot in an adjoining room, which indicates the possibility of overrun from water. So the carrier denied the claim, stating it stemmed from a prolonged issue.

Should this claim be covered?     

— Pennsylvania Subscriber

Answer: One of your issues is that someone knew of the leak beforehand, since the pot was under the sink.

Also, it sounds like the property was vacant more than 30 days. Even though it was checked on, vacant property is excluded. Looking in through a window is not a sufficient check of a vacant or even an occupied property. In general, the date of discovery is the date of loss. But since there is obvious damage over time in this case, and dry rot in another room, these facts support the carrier’s denial of the claim for an ongoing leak.

Covering a slow leak vs. a ruptured pipe

Question: I have a claim in which the insured’s building may have had an unknown leak. At some point, this leak burst, causing a large amount of water to intrude and flood the building.

The carrier denied the claim based on a statement from the insured’s contractor, which said that he removed the flooring from the building because it was rotted. The contractor now denies saying this. However, even if there was an unknown leak, at some point the pipe burst, as evidenced by the testimony of the water company.

Is there any California case law that supports our claim that the sudden burst of this pipe should be covered?

— California Subscriber

Answer: For an answer, you first must address questions of facts:

• Was there a slow leak, or did the pipe burst?
• Is there evidence of a ruptured pipe beyond the volume of water?
• Were there any visual signs of a slow leak apparent to the insured?

The standard homeowners policy provides coverage for accidental discharge or overflow from a plumbing or heating appliance; the intent of the policy is to provide coverage for sudden leaks or discharges, not for things that occur over time, such as wear and tear to a pipe that results in a slow leak. If your policy has an exclusion for leaks existing over weeks, months or years, the true cause of loss must be determined. It is possible there was a slow leak and then the pipe burst, at which point if the leak was hidden there may be coverage for both depending on the policy language, or there may be coverage just for the damage caused directly by a ruptured pipe.

I could find no cases that fit your situation.

Settling due to leaking vs. natural causes

Question: The policyholder submitted a claim for a broken water pipe hidden behind the walls of his home. The carrier has agreed to pay to access the pipe and restore the walls. During the repair process, the contractor noticed significant settling of the slab, which the contractor attributes to escaped water from the broken pipe. The contractor drilled sample holes in the garage contiguous to the slab in the area of the water damage. He found settlement due to the water damage along the footers closest to the water leak. As he moved 5 feet away, he found little or no settlement. He also noted the drain pipe ran in the direction of the garage, and stated that it was natural for water to follow the slope of the pipe.

The carrier is declining costs to properly secure the slab. Also, the carrier notes land is not covered property.

— Pennsylvania Subscriber

Answer: The settling exclusion is intended for natural settlement that occurs over time, not settlement as a result of a leak. However in Sharp v. State Farm Fire & Cas. Ins. Co. 938 F. Supp. 395 (W. D. Tex., 1996) the court held that the carrier was correct in denying coverage for loss from foundation movement caused by a plumbing leak. They felt this was within the settling, cracking, bulging exclusion. Likewise, in Montee v. State Farm Fire and Cas. Co., 782 P.2d 435 (Or. App. 1989) the court ruled that even though the water that caused damage to the house was from an empty house uphill from the insured, the settling, cracking, bulging exclusion applied. Conversely, in Novell v. American Guar. And Liability Ins. Co., 15 P.3d 775 (Colo. App. 1999) the court ruled that the settling exclusion was ambiguous and that there was coverage for settlement caused by an underground water leak. Likewise Hartford Acc. & Indem. Co. v. Phelps 294 So. 2d 362 (Fla. App. 1974) agrees and entered judgment in favor of the insureds for coverage for settlement of the house when a broken pipe which was part of the house leaked and caused settlement.

We agree with the later courts, that the settlement exclusion is intended for natural events over time, not sudden events. However as you can see courts are divided, and you might want to check in your area to see how courts feel about this issue.

The loss is to the foundation, not the dirt, so the land exclusion doesn’t apply either.

Leaking hot water heater damaged another’s property

Question: Our client owns a condominium and is insured on a standard 1991 HO 00 06 04 91.

Recently, his water heater leaked and damaged his unit and the unit below him. The HO 00 06 insurer has agreed to pay for damage in the insured’s unit, but is denying any coverage for the downstairs unit, citing “no negligence” on the part of the insured.

We believe that our insured should receive some section II coverage under “damage to property of others.” What do you think?

— Ohio Subscriber

Answer: The coverage for “damage to property of others” in Section II of the homeowners policy was designed for just the situation you describe. It is “good will” coverage that pays — on a no-fault basis — for damage done by the insured to someone else’s property. No negligence needs to be shown.

Because your insured owns the water heater, he is responsible for any damage it might cause. If the person whose unit was damaged actually sued your insured, the insurer would certainly incur costs in excess of $500. Even if he were eventually found “not negligent,” the insurer would still have to defend him. Defense costs alone would probably be more than $500. Saving the insurer money on small claims represents another reason for the existence of this coverage.

This claim for damages to the neighbor’s unit is covered and should be paid, up to the policy limit of $500. (The ISO 2000 forms change this amount to $1,000.)

Had the above scenario been different the ISO 2000 exclusion for damage to property owned by an insured might have come into play. A judicial interpretation of the coverage for property damage has resulted in ISO’s revision of the exclusion for damage to property owned by an insured. The insured owned a condominium with a large glass enclosure, which allowed water to leak into a condominium below. The condominium association repaired both the enclosure and the other condo, and then assessed the insured for the costs. The court in the case of Aetna Ins. Co. v. Aaron, 685 A.2d 858 (Md. App. 1996) held that repairs to the insured’s own property to prevent further damage to property of another were covered. Therefore, ISO has changed the exclusion for property damage to property owned by an insured to include costs incurred by an insured to repair or maintain such property to prevent injury or damage to a person or to property of others.

Is water damage to yard and street covered?

Question: We have an insured who had a leak occur in the line running from her house to the municipal sewer. According to the local borough, the leak caused the dirt to sink and compact, which in turn caused a large hole under the sidewalk and part of the street.

The insured had to have the line dug up and repaired. The sidewalk was saved and the street repaired after the hole was filled in.

Her insurer is refusing to pay for the cost to do any of the repairs. We think, though, that since the insured was responsible for the yard and sidewalk, these costs should be covered.

Please give us your opinion.

— Pennsylvania Subscriber

Answer: While the yard, sidewalk, and pipe might be the insured’s responsibility to maintain, that does not make any of them covered property. The policy does not cover land, and the plumbing leak, from the line to the street, did no damage to covered property so as to trigger coverage for reasonable repairs. If the ISO HO 00 03 10 00 is involved, the cost to tear out and replace a part of an “other structure” is covered, but only if a building is first damaged by a plumbing leak.

As for the sidewalk, that might or might not be covered property. In some areas, the sidewalks belong to the municipality but it is the individual homeowner’s responsibility to maintain them.

But, from what you state, this appears to be more of a liability claim against the insured rather than a first-party property damage claim. The Borough might be alleging that the insured’s negligent maintenance led to the damage to its property — the street and the sidewalk — and therefore, it is the insured’s responsibility to repair the cause of the damage. So, this might mean getting the claims adjuster re-involved in the loss.

Analysis brought to you by the experts at FC&S Online, the recognized authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins.

See also:

5 reasons why renters need insurance

Air filtration devices and water damage claims

Here’s why some water damage claims aren’t covered

Two times that flood damage was not covered