Our client has a CP 00 10 04 02 covering their leased telephone system. The system, consisting of several components located throughout the building, was only thirty days old when it suffered water damage from a frozen overhead water pipe. The lessor insists that any component exposed to water be replaced, whether it suffered obvious damage or not. The lessor will not honor the warranty/service agreement for any components exposed to water but not replaced. Likewise, the lessor will not honor the agreement for components which are repaired, rather than replaced.

We don't believe the insured is made whole if they lose the warranty/service agreement on their equipment. Whether the insurance company pays to replace the equipment or pays the value of the warranty (which would be difficult to determine), it seems clear to us that they must recognize the value of the warranty in the claim settlement.

Michigan Subscriber