Our insured's building suffered water damage from a broken underground water pipe. The damaged pipe led from the water main in the street to the insured's building. Naturally, the broken pipe had to be dug up to be repaired in order to avoid the continuation of the water damage to the building. The insurance company is willing to pay for the water damage to the building, but it refuses to pay the cost of digging up the water pipe to repair it, citing building and personal property form CP 00 10 04 02. Under “Property not Covered,” the form says that covered property does not include the cost of excavations, grading, backfilling, or filling. The insurer is using this portion of the policy to say that the cost of excavating the pipe to repair it is not covered.

What do you think?

Ohio Subscriber

The form says that covered property does not include the cost of excavation. The building is covered property, so its insured value does not include the cost of excavation. Excavation is a service that goes into the cost of constructing a building if the building is set in the ground. It is part of the cost of the building, as is the cost of painting it or the cost of cleaning up the construction debris once the building is finished.

The framers of the form wanted to cover most costs involved in replacing a building destroyed by a covered cause of loss, but they did not want to cover the portion of the building's cost that is occasioned by excavation.

However, to use policy language to exclude the cost of digging up a broken water pipe is an unwarranted stretch. By excavating, the insured is preventing the covered peril of water damage from causing further harm to the building.

One of the insured's duties in the event of the loss as set out in CP 00 10 is to “Take all reasonable steps to protect the Covered Property from further damage by a Covered Cause of Loss.” The form asks the insured to keep records of expenses incurred in arranging emergency repairs “for consideration in the settlement of the claim.”

Repairing a broken water pipe that is causing water damage to an insured building is just the type of emergency repair contemplated by the form.

For the sake of clarification, when the form says “for consideration in the settlement of the claim,” it is not suggesting that the insurer will consider or think about paying the expenses—maybe yes, maybe not. The term “consideration” is used in its other meaning, as in payment or recompense.

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