By Diana Reitz, CPCU

From the March 2009 issue of Claims Magazine

The other week, I was talking with a claim specialist about the freakish weather of recent months and the sure-to-follow influx of claims. National Underwriter Company's home office was closed following a terrible windstorm in September when the power went out for the entire region, and again in late January for a day because of the ice storm that struck the Midwest.

I don't believe the company filed any claims as a result, but the news was full of fallen tree limbs, downed power lines, business interruptions, and damaged buildings. Those were just minor inconveniences in the scheme of things. Some parts of the country were still without electrical power more than a week after the heart of the January ice storm faded. A number of people died.

Whether you credit the increase in severe weather to global warming, payback for the greed of Wall Street, or just plain coincidence, the result is an increase in weather-related damage to homes and business properties and an increase in auto crashes.

All of this heaps loads of work on the backs of already overloaded claim adjusters. (I really have never met an adjuster who says she has time to relax while on the job, even without these incidents.)

The analysts and writers for FC&S Online have developed massive amounts of coverage analysis during the 80-plus years that we have been around. During that time, we have developed a number of guidelines for coverage interpretation that we use when discussing losses with our subscribers. Here are some of the guidelines that get the most exercise with our subscribers.

Types of Water

When does rain become surface water? When does surface water change into “water beneath the surface of the ground”? What is the difference between a flood and a vast accumulation of surface water?

Our guideline is that falling rain, regardless of how heavily it falls, is not surface water, and it is not flood water. It is, simply, rain, which becomes surface water when it reaches the ground and flows or meanders over the ground's surface. If the rain never reaches the ground—for example, if it falls directly into a window well—it remains rain.

A flood typically is considered water that has overflowed its natural boundaries, such as when a river or lake reaches flood stage. This water has overwhelmed the capacity of its natural boundaries and invaded dry land. Sometimes, however, flooding conditions are caused by vast amounts of water runoff that cannot be carried away by normal channels, like streams and rivers. For purposes of the standard homeowners', dwelling, and commercial property forms, both flood and surface water are excluded in the same clause, so differentiating between them is of little import.

However, when DIC policies are used to provide flood coverage, it is wise to be sure that the policy defines “flood” to include not only the overflow of water from its normal boundaries but also the accumulation of surface water. Otherwise, there could be a coverage debate.

Our guideline is that water below the surface of the ground—also excluded on standard property and homeowners' forms—encompasses naturally occurring water and not that which escapes from a pipe or well. When a subsurface pipe breaks and releases water, the resulting water damage is not typically excluded but is considered water that escaped from a plumbing system. That type of water damage is covered.

Limitation for Damage to Interiors

Another frequent source of discussion for commercial property and BOP forms involves damage to the interior of a building (and sometimes to personal property within the building) by rain, snow, sleet, ice, sand, or dust. There is no coverage to this interior property unless the building first was damaged by a covered or specified cause of loss, and that resulting damage allowed the elements to enter the building. There is an exception, however, for interior damage that is caused by the thawing of ice, snow, or sleet on the building. So what's the difference?

Our collective opinion is that the limitation is meant to exclude interior rain or snow damage that is caused when the elements enter by way of an open window or a crack in the wall. However, when the damage is caused by ice damming — a situation that occurs when water freezes and, upon thawing, backs up under shingles or other roofing materials, there is coverage. The difference is a matter of care (closing the windows during a storm or fixing a crack) and a situation that could not easily be remedied with normal human intervention.

Sewers or Drains

First off, let's begin with a definition. For a backup to occur, a liquid first has to have flowed into a drain. After flowing forward, the liquid must reverse itself in order to constitute a backup.

We frequently receive questions about how to analyze coverage when the policy in question has been endorsed to provide coverage for the backup of sewers and drains, and a roof drain is involved. In most of these cases, leaves and other debris have collected around the roof drain entrance, and water has pooled on the roof. The subscribers grapple with whether the backup of sewers and drains coverage trumps the limitation to interior damage when such debris collects, water finds a way in to the building, and interior damage occurs.

In general we do not believe that type of loss is covered, even when there is coverage for backups of sewers or drains. Why? The water has not backed up from a drain because it never was inside the drain, and a covered cause of loss did not create a hole through which the liquid entered the building.

There are many details of each and every loss that occur, and we're the first to note that a minor difference in the facts of a situation could change our opinion on coverage. Additionally, jurisdictional rulings have to be considered. But the guidelines we've developed over the years can be used as just that— ules of thumb against which the facts of the claim situation can be compared. A few variations in the fact pattern can dramatically change the outcome, but an understanding of the way coverage flows, or is excluded, certainly helps when analyzing those facts.