My commercial property insured found that the floors in their commercial building were becoming soft. They investigated in the crawl space under the floor to find the problem. There was a leak in the hot water pipe which caused moisture and humidity, damaging the floor above. Damage is $123,000. The insurance company has denied the claim due to the repeated seepage or leakage over a period of more than fourteen days exclusion. The insured could not hear or see the water leak and so had no way of knowing what was going on under the floor.

Kansas Subscriber

This type of loss is the very type meant to be excluded by the commercial property policy's repeated seepage or leakage exclusion.

The leakage exclusion is housed with a number of other exclusions meant to exclude gradual deterioration, atmospheric changes, and “maintenance type” (wear & tear, mechanical breakdown, etc.) losses. These exclusions are meant to eliminate coverage for non-fortuitous (“sure thing”) losses; i.e., if you allow a pipe to leak for more than two weeks, damage will occur.

The fact that the insured could not easily make himself aware of the impending damage does not make it any the less a non-fortuitous loss. And, though it is easy to say post-loss, a program of frequent inspections of such areas is important to a business' risk management program.

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