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.