It’s a common misconception that water damage from a burst pipe at your investment property is automatically covered. Water Damage from a burst pipe is not included under Basic Form coverage. Broad and Special Form formats of property insurance policies cover this peril and are the coverage formats you will most likely see offered in insurance programs for investment properties. All this to say, if you have Basic Form, you do not have coverage for water damage resulting from a burst pipe. If you have Special Form coverage, water damage coverage is included.
Welcome to our “Is It Covered?” series. For a fuller introduction of the series, read HERE. We hope these quick reads will help you increase your understanding of your insurance coverage, clear up confusion and help you avoid preventable losses! Please bear in mind that insurance policies may vary, so always check your own policy for language specific to your covered property. If you have coverage questions, don’t hesitate to call your agent who will be happy to assist you!
Basic vs Special Form Coverage Compared
*Risk of Direct Physical Loss above refers to any peril not listed on the chart. In the Special Form, unless a peril is listed as an exclusion within the policy, there is coverage. This is referred to as “Open Perils.” However, with both Basic and Broad form coverage, a peril must be listed within the policy for there to be coverage.
What is Considered Water Damage for Insurance?
Water Damage must be “sudden and accidental” to be covered. Examples include a pipe bursting or the accidental overflow of a bathtub. In colder seasons, frozen water in a pipe may cause that pipe to burst. For Water Damage coverage to be available, one must certify they have attempted to maintain heat in the building or have fully drained the system and shut off the water supply. Rain that damages the interior of a property after the roof was compromised from a storm is also under this coverage. Damage over time, such as a slow leak that triggers mold behind walls, may not be covered depending on how long the condition was left to develop. You will want to report any such issues to your insurer promptly.
What is the Difference Between Water Damage and Flood?
A flood may occur due to water from rivers or lakes breaching their banks during heavy rains. The over-saturation of the ground can also cause a flood if excess water seeps through foundations or other vulnerable parts of the structure. Rising waters are a key component of a flood and are different than an overflowing bathtub, which falls under Water Damage. Flood coverage is never part of Basic, Broad, or Special Form coverage. It is a stand-alone policy, purchased separately from other Property and Liability coverages.
How is Sewer Backup Covered by Insurance?
Sewer Backup is another common exclusion in property policies and is defined as “water that backs up or overflows from a sewer, drain or sump.” Drains and sewers can back up during storms. So, what is commonly referred to as a “flooded basement” may or may not technically be flooded when it comes to insurance. It all depends on how the water enters the space. With that stated, investors will want to ensure that basement drainage systems are well-maintained and that sump pumps get tested regularly to help avoid water damage from sewer backup. Though a sewer backup involves plumbing, it is a separate peril, and limited coverage may or may not be available, depending upon the insurer.
How Do I Add Coverage for Water Damage?
You can make sure you have Water Damage coverage by purchasing a Special Form policy. This will cover water damage from a burst pipe. Special Form coverage does cost more than Basic Form coverage, but when you consider how many more perils are insured, it’s easy to understand the difference in pricing. Be aware that Basic Form is typically the only format available for vacant properties, which is why protecting them against frozen pipes is so important!
What Does the Technical Lingo for This Exclusion Look Like in My Policy?
Sample policy language may look like this:
“We will not pay for the loss or damage caused directly or indirectly by…Water:
- Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge);
- Mudslide or mudflow;
- Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump, or related equipment;
- Water under the ground surface pressing on, or flowing or seeping through:
- Foundations, walls, floors, or paved surfaces;
- Basements, whether paved or not; or
- Doors, windows, or other openings; or
- Waterborne material carried or otherwise moved by any of the water referred to in Paragraphs 1, 3, or 4, or material carried or otherwise moved by mudslide or mudflow.
This exclusion applies regardless of whether any of the above, in Paragraphs 1 through 5, is caused by an act of nature or is otherwise caused. An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall, or other boundary or containment system falls in whole or in part, for any reason, to contain the water.”
As insurance policies may vary, please check your own policy for language specific to your covered property.
How Much Can Water Damage Cost?
Water losses can range from a few hundred dollars to tens of thousands depending on the extent of the leak or intrusion. Consider that 40,000 gallons of water (the capacity of a small water silo) can pour through your investment property quickly. Prolonged moisture can cause catastrophic mold damage if not attended to within 24-48 hours. If you own a multi-unit property, adjacent units could be affected by this peril. You could even be held liable for water that flows into your neighbor’s property.
What Can I Do to Protect My Investment?
First, know what is in your policy: Read the sections of your insurance policy that address Water Damage. It is important to know what you are and aren’t covered for. If you don’t understand your coverage or have questions, don’t hesitate to ask your agent, who should be happy to help you!
Shut the water off and drain the systems at all your vacant properties: At the very least, shut the water supply off in the house itself. That way, if you have a pipe that bursts, the amount of water will be limited to what is currently in your plumbing system. Even better, shut off the supply at the street and drain the system. Then, there isn’t any water to freeze in the first place. Pouring environmentally safe, biodegradable antifreeze into your toilet bowls and tanks, sinks, and any other drains in the house can keep those from being damaged too. If you don’t feel comfortable doing this yourself, winterization is a simple job for a professional. Also, ensure the heat is set no lower than 55 degrees. It may need to be higher during extreme cold snaps or if your property is in a more northern location.
For occupied properties, insulate pipes on outside walls: Before the temps drop too low, ensure any plumbing on exterior walls is properly insulated. Instruct tenants to keep faucets on a slow drip during cold snaps and open the cabinets below sinks to allow warmer air to circulate in those spaces. Text or e-mail reminders are great! Lastly, don’t forget technology can be a great ally. There are a variety of companies offering freeze sensors that send alerts right to your phone if there is an issue.
Prevent mold: Mold can grow within 24-48 hours after a water event like a burst pipe. If you add heat to the equation, you’ll have created the perfect environment for mold. It is critical that you dry out your property as quickly as possible after a storm. You may need to call a water mitigation company to help if the job is large. Mold is typically excluded from most property policies, so swift action to remediate any mold issue is critical!
Make sure your sump pumps are working: Make sure your sump has a backup battery in case of a power outage. Excessive rain, downed trees, and other plant debris can back up city drains, causing additional drainage issues. If there is a catastrophic flood, there may be nothing you can do, but keeping your sump running may save you a lot of headaches and money in a more localized flash flooding event.
Make sure your tenant understands their personal property isn’t covered by your insurance: Include a clause in your lease requiring tenants to carry renters insurance and make sure you enforce it. Let them know any insurance you carry on the property as the owner does not apply to their personal belongings. Impress upon them the importance of reporting any hazardous conditions on the property to you or your property manager immediately. You may want to include a section in your lease where the tenant acknowledges their understanding of these items. Another option is to purchase a product like our Tenant Protector Plan that does provide content coverage for your tenant.
Burst pipes and resulting water damage can be very costly. Know what you are covered for and prepare your properties accordingly each season!
