Understand Your Coverages for Water Damage on a Property Policy

Flood Insurance

Flood is usually not automatically included with coverage under a property policy. Broadening endorsements may provide limited coverage, but even this is unusual. Flood insurance generally must be purchased and added by endorsement to the property policy. This is usually only allowed where the risk lies in a Zone C area (as classified by FEMA).

In situations where the property is in an A, B, X, or Shaded X zone, National Flood Insurance Program (NFIP) coverage is usually required. In some cases excess flood can be purchased from the private market to supplement the NFIP, but this additional coverage is difficult to obtain. 

Flood is generally defined as tidal surge; overflow of rivers, lakes, streams, or other bodies of water; or rapid accumulation of surface water and subsequent run-off.

Backup of Sewers or Drains

Not a standard peril on a property policy, this coverage must be purchased and added by endorsement. Some broadening endorsements will provide this coverage; however, most are sub-limited and have additional conditions.   

This peril is exactly what it sounds like. There must be backup of the water (or wastewater) from sewers or drains.  This peril does not include clean water pipes or systems since they are not drains. 

Claims have been made for backup of storm drains in municipalities (leading to water intrusion into adjacent structures), and some of these claims are covered depending on the wording of the coverage grant. Many of the coverage grants now specifically exclude storm drain coverage off the premises. 

Claims have also been made for water intrusion due to water backup from blocked scuppers and guttering. Some of these are covered as well, depending on the wording of the coverage grant and the specifics of the event; however, many policies have now specifically excluded gutters and scuppers, since that was not the original intent of this coverage grant.

Rupture or Discharge from a Fire Suppression System

This is generally included in all property policies. It covers water damage from a rupture of a sprinkler system (or similar system) or the accidental discharge of a sprinkler system. The system itself is not covered for repairs, but the resulting water damage is covered for both real property and business personal property.

Rupture or Discharge from a Plumbing, Heating, or Air Conditioning System

Very similar to the fire suppression system coverage, this is designed to cover sudden and accidental leaks, ruptures, or discharges. It is not meant to cover ongoing or “slow” leaks.

Usually if mold or wet rot is discovered, the claim will not be covered, since this is evidence of a slow leak over time. Slow leaks over time are not considered sudden and accidental but rather a maintenance issue. If leaks have been occurring for a few days or, in some cases, even a few weeks, coverage may very well apply, but if evidence (as mentioned above) of long-term issues is evident, coverage will not apply. 

The cost of repairs to the plumbing, heating, or AC system is NOT covered, only the resulting water damage to the building and contents. The tear out and replacement areas of the building needed for repairs is also covered in most cases, but not the actual repair of the leak itself.

Weather

This is the most misunderstood type of water damage. When an underwriter accepts a risk and agrees to insure it, they assume it to be properly designed, constructed, and maintained. If any of those things are the cause of a water loss, coverage is unlikely to apply. 

Windows and doors are expected to be properly sealed and caulked to prevent water intrusion, even when driven by wind. Roofing is expected to be properly installed, flashed, and sealed to prevent any water intrusion. 

Water damage from weather is usually from rain, sometimes from snow or ice. In some very rare instances, there can be coverage for water damage from melting ice. 

For water damage from weather to be covered, the exterior wrap of the building must first be compromised from a covered peril to create an opening in which the water enters the building. Examples include:

• Wind ripping off shingles or peeling back flat or built-up roofing
• Falling objects puncturing the exterior wrap of the building
• Wind blowing out windows or blowing off siding
• Damage to roofing or windows from hail, which can allow water to intrude

The main thing to remember is that there must first be exterior damage to the building that allows the water to enter.  The fact that water entered the building is not prima facie evidence of a covered peril causing damage to the exterior. The damage must be demonstrated or visible. 

With hurricanes, water blown at a very high velocity will find any crevice or even the slightest opening in a roof, or around windows or doors and even under doors. This is NOT covered water damage unless there is exterior damage to the building. When water enters in this manner, it is the result of either a construction defect or a maintenance issue with the building (since water should not enter buildings that are properly designed, constructed, and maintained).

Water Below the Surface of the Ground

Any water – whether from rain, snow or ice that has seeped into the ground or from natural ground or spring water – that seeps into or enters the structure through the foundations or walls/floors of a basement (or any below-ground area of a building) is NOT covered. 

This is specifically excluded in nearly every property insurance policy. It is considered a design, construction, or maintenance issue and not a covered insurance peril.