Welcome to Affinity Loss Prevention Services “It’s Not Covered” series. For a fuller introduction of the series, read HERE. We hope these quick reads help you increase your understanding of your insurance coverage, clear up confusion and avoid preventable losses!
So, what’s the confusion?
Many people think they are automatically covered for Water Damage that results from a burst pipe at their investment property. The fact is, Water Damage from a burst pipe is not covered under the Basic Form, but only under the Broad and Special Form formats of property insurance policies. Of those three coverage formats, you will be most likely to see either Basic or Special Form offered in many insurance programs for investment properties. So, if you have Basic Form you will not be covered for Water Damage resulting from a burst pipe, but if you have Special Form coverage, Water Damage coverage is included.
Even if you have Water Damage coverage…
Water Damage must be “sudden and accidental” to be covered, such as a pipe bursting or the accidental overflow of a bathtub. In colder seasons if freezing causes a pipe to burst, one must certify that they have done their best to maintain heat in the building or have fully drained the system and shut off the water supply in order for coverage to be available for the ensuing water damage. Rain that damages the interior of a property after the roof is compromised from a storm also falls under the category of Water Damage. Damage over time, such as a slow leak that causes mold behind the walls may not be covered, depending upon how long the condition has been left to develop, so you will want to report any issues to your insurer in a timely manner.
How does “Water Damage” differ from a “Flood”?
A Flood may occur when water from natural sources such as rivers and lakes breach their banks during heavy rains orwhen the ground is over-saturated with water and causes the excess to seep through foundations or other vulnerable parts of the structure. One of the key components of a Flood is “rising waters” but that is different than an overflowing bathtub (still Water Damage). Important: Flood coverage is never a part of the Basic, Broad or Special coverage forms – it is set up as a “stand-alone” policy and is purchased separately from your other Property and Liability coverages.
And what about “Sewer Back-Up”? Is that Water Damage or Flooding?
Sewer Back-Up is another common exclusion in property policies and is defined as “water that backs up or overflows from a sewer, drain or sump.” (ISO) Drains and sewers can back up during storms. So, what you or I call a “flooded basement” may or may not technically be “flooded” when it comes to insurance – it all depends upon how the water enters the dwelling. That stated, investors will want to make sure that any drainage systems in basements are well-maintained and that sump pumps are regularly tested to help avoid water damage from Sewer Back-Up. Though a sewer back-up involves plumbing, it is a separate peril on it’s own and limited coverage may or may not be available, depending upon the insurer.
Is there a way to add coverage for Water Damage, and does it cost extra?
Yes, you can make sure you have coverage for Water Damage by purchasing Special Form coverage. 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 often only Basic Form is available for vacant properties, which is why protecting them against frozen pipes is so important!
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. Clear as mud?
What does the lawyer-y-speak version of this exclusion look like in my policy?
Sample policy language may look similar to this:
“We will not pay for the loss or damage caused directly or indirectly by…Water:
1) 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);
2) Mudslide or mudflow;
3) Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;
4) Water under the ground surface pressing on, or flowing or seeping through:
- a) Foundations, walls, floors or paved surfaces;
- b) Basements, whether paved or not; or
- c) Doors, windows or other openings; or
5) Waterborne material carried or otherwise moved by any of the water referred to in Paragraph 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 this type of damage cost me?
Water Damage losses can vary from a few hundred dollars to tens of thousands depending upon the extent of the leak or intrusion. Consider that 40,000 gallons of water (that’s the size of a small water silo) can pour through your investment property in no time and 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 also become “casualties of war” or you could even be liable for water that flows into your neighbor’s property causing a headache for them and causing potential strain on your relationship.
What can I do to protect myself?
First, know what is in your policy: Read the sections of your insurance policy that address Water Damage. It is important to know both what you are and are not 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 do have a pipe that bursts, the amount of water will be limited to what is currently in your plumbing system. Better still, shut off the supply at the street and drain the system. Then, there isn’t any water in there 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, it is a relatively simple job for a professional. Also, make sure the heat is set to 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 that are on an outside wall: Before the temps drop too low, make sure any plumbing located on an exterior wall is properly insulated. Instruct tenants to keep faucets on a slow drip during cold snaps and open up 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 out there offering freeze sensors that send alerts right to your phone if there is an issue.
About that mold: Mold can grow very quickly if you have a burst pipe. In fact, it can grow 24-48 hours (or sooner!) after a water event. Add heat to the equation and you have a recipe that mold loves. As such, it is imperative after a storm to dry out your property as quickly as possible. You may need to call in a water mitigation company to help if the job is a large one. Mold is typically excluded from most property policies so swift action to remediate any mold issue is critical!
Sump Pumps: Make sure your sump has a back-up battery in case of a power outage. Where’s all that water in the basement gonna go? With strong storms may come a lot of rain. (Too obvious?) And with downed trees and other plant debris, city drains may get blocked and then you have additional drainage issues. If there is a catastrophic flood there may be nothing you can do, but keeping your sump hummin’ may save you a lot of headache and money in a more localized flash flooding event.
Make sure your tenant understands their personal property isn’t covered by your insurance: Require your tenants to carry renters insurance in the lease and 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.
About the Author
BreAnn Stephenson is the Loss Prevention Director for National Real Estate Insurance Group. BreAnn brings over 15 years of insurance and client/customer service experience to the team.