In Puerto Rico, we are having a drought period. As a result of this, the Puerto Rico Aqueduct and Sewer Authority have taken measures to save water and are shutting off the water for a period of time every 36 hours. Consequently, insureds often forget to check all faucets to ensure that they are properly "off" before leaving, causing damage to the insured premises.

Under various causes of loss forms attached to the commercial property policy, our insureds are submitting claims where someone has negligently left open a faucet, allowing it to overflow its basin and cause damage. We believe that even though there is no exclusion related to this damage under the named perils broad form, the definition of the peril limits it to "the breaking or cracking of any part of the system" (as a pipe).

Is there any coverage for this type of loss under any of the basic, broad, or special causes of loss form?

Puerto Rico Subscriber

As we understand the question, you ask about coverage under the commercial property policy's causes of loss forms for loss incurred where water is shut off by the authorities, and the insured negligently leaves the water taps in the on position, resulting in water damage when service is restored.

Of course, there is no coverage under the basic form (CP 10 10 04 02), as water damage is not a specified cause of loss. Water damage is a specified cause of loss under the broad form (CP 10 20 04 02), but, as you correctly point out, damage under this peril must be from the accidental discharge of water as a direct result of the breaking or cracking of a part of the system. Therefore, there would be no coverage under this form either.

However, coverage apparently does result under the special causes of loss form (CP 10 30 04 02). Here, all direct physical loss is covered, unless falling under one of the policy's exclusions.

There is an exclusion of the continuous or repeated leakage of water that occurs over a period of 14 days. Therefore, a loss occurring while the insureds or tenants are on a two-week vacation, for example, would not be covered.

Additionally, although it seems far-fetched, the "off premises services" exclusion might also be considered in denying coverage. If the turning off of water service can be construed as "a failure of utility service to the described premises" occurring away from the described premises, then that exclusion might be relied upon in denying coverage. On the other hand, that exclusion states that if damage by a covered cause of loss results, that loss is covered. Water damage (which is undefined in the special form) is a covered cause of loss, so that exclusion is negated.

The last exclusion that must be considered is the "governmental action" exclusion. However, that exclusion applies only to seizure or destruction of property by order of government authority. Water damage inside the premises is not seizure or destruction of property by government authority.

In summary, there is no coverage for this type of loss under the basic or broad form, but there is under the special form.

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