Several months ago, I wrote about some of my favorite newsletters and blogs. One of them is the Merlin law group’s property insurance blog. Last week, I was reading one of their daily blog posts titled “Is Water Damage Caused by a Burst Water Main Covered?

A potential client contacted a staff attorney about a water damage claim that was denied by the homeowners insurer. A municipal water main in the street had burst and water entered the dwelling. The carrier cited the “water damage” exclusion for damage caused by flooding, surface water, and water below the surface of the ground. The blog post cited the attorney’s opinion, with case law citations, why this exclusionary language should not apply.

Several years ago, I wrote an article titled “Surface Water…What Is it?” that is still a public article on the Big I’s Virtual University. I considered similar arguments expressed in the blog post and also cited case law. But the bigger issue I want to address in this article is the importance of the precise language in the policy. The Merlin blog post does not indicate the carrier, so we don’t know all of the language in the policy form and whether it’s an ISO policy or not.

The point is, IF it is indeed a policy like the current ISO “HO-3,” then there is no need to debate undefined terms like “flood,” “surface water,” etc. The current ISO clearly covers the loss BUT you have to look somewhere other than the cited water damage exclusion to find the coverage:

Unless the loss is otherwise excluded, we cover loss to property covered under Coverage A or B resulting from an accidental discharge or overflow of water or steam from within a…Storm drain, or water, steam or sewer pipe, off the “residence premises”….

Section I – Exclusion A.3. Water, Paragraphs a. and c. that apply to surface water and water below the surface of the ground do not apply to loss by water covered under c.(5) and (6) above.

In ISO’s current HO 00 03 05 11 policy, the water damage exclusion appears on Page 12, but the exception for off-premises water line breaks appears on Page 10.

(Another area where ISO HO forms provide broader coverage than most non-ISO forms is for damage due to water line leaks (“repeated seepage or leakage”) in a home that take place over weeks, months or years. As long as the damage is not visible and the insured notifies the carrier promptly when discovered, the damage is covered under the ISO HO form cited above, but not under many other non-ISO policy forms.)

So what lessons does this claim teach us?

First, insurance is NOT a commodity. Whether you’re talking about home, auto, or business insurance, insurance policies and insurer claim practices are different. When “Flo” says, “You get the SAME COVERAGE, often for less,” she’s not telling you the truth. It’s not all the same coverage. Differences like those cited above can result in 5- or 6-figure uncovered property claims. In the case of liability insurance (auto/home/umbrella), policy language differences can result in multimillion dollar uncovered claims.

Second, you must RTFP! Insurance policies are different. Even a punctuation difference, the use of “an” instead of “the,” or other subtle contract language differences can make a big difference in whether a claim is covered or not. In determining coverage, you MUST apply the legal principle of “contract entirety”…you MUST review the policy form in its entirety, including any applicable endorsements. I am currently working on a book tentatively titled “When Words Collide…Resolving Insurance Coverage and Claims Disputes” that I plan to publish in the first half of 2018. It addresses these types of issues and provides a simple 4-step process for resolving claim disputes.

Third, insureds need counsel and advocacy. Do you think the typical homeowner would know how to determine whether they have coverage or not in claims like this? Do you think that a consumer buying insurance online or directly from a carrier would have someone to advocate for them at claim time? Not a chance. I don’t’ want to take away business from the Merlin law firm, but there’s really no need for litigating claims like this if a good insurance professional is included in the purchasing process.

Caveat emptor. Your best bet in buying any form of P&C insurance is to rely on a GOOD independent insurance agent to assist you in identifying your exposures to loss, determining the proper risk management technique (insurance being one) for your unique exposures, and advocating on your behalf if there is a problem in properly resolving your insurance claim.

P.S.  ISO’s commercial property forms also cover water damage arising from a water main in the street that bursts due to wear and tear. Not all business insurance coverage forms do. Caveat emptor.

Photo by Olivier Pasco

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Bill Wilson

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One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information