Water damage claims to commercial property are increasingly common. In fact, a study by Hartford Insurance Company shows water damage claims are second in frequency to burglary and theft losses. The cost to deal with water damage can be very high and, unfortunately, certain types of water damage claims may not covered by standard commercial property insurance coverage.
Types of Water Damage Losses
There are three types of water damage losses that can affect commercial property:
- Flood: meaning the rising surface water, waves, or overflow of any body of water.
- Plumbing: signifying the rupture or bursting of a water supply line, or the backup of a sewer or drain line.
- Roofing: denoting water that penetrates the roof and causes damage to the interior of a building or to the contents of the building.
The last type if water damage – caused by a roof leak – is an often misunderstood loss that we would like to examine further in this article. We will be quoting from the ISO CP 10 30 10 12 (Cause of Loss – Special Form) to understand how and when water damage claims caused by roof leaks are not covered, and how to prevent them from occurring.
Exclusion for Water Damage Claims
The ISO CP 10 30 contains an exclusion for certain water damage claims:
(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.
The intent of this exclusion is to remove coverage that is better provided by another type of policy, such as flood insurance or a difference in conditions policy. Backup of a sewer or drain may be added by endorsement to some policies, although the coverage is often lower than the building limit.
Leaking Roof Limitation
Note that water damage caused by a leaking roof is not listed in the water exclusion. However, found later in the CP 10 30 form is a section titled “C. Limitations” that includes the following verbiage (italics added):
The following limitations apply to all policy forms and endorsements, unless otherwise stated:
1. We will not pay for loss of or damage to property, as described and limited in this section. In addition, we will not pay for any loss that is a consequence of loss or damage as described and limited in this section.
c. The interior of any building or structure, or to personal property in the building or structure, caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not, unless:
(1) The building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain, snow, sleet, ice, sand or dust enters; or
(2) The loss or damage is caused by or results from thawing of snow, sleet or ice on the building or structure
In essence, water damage claims caused by a leaking roof are covered if the building roof or walls are first damaged by another covered cause of loss, such as a windstorm, fire, or thawing of ice or snow. Absent any evidence of damage to the building by another cause of loss, the water damage to the building and/or personal property would be excluded by this limitation.
Put another way, if the roof is simply in poor condition and leaks, a property insurance policy will not cover subsequent damage to the building interior or contents.
Preventing Roof Leak Water Damage Claims
Property insurance policies are drafted to exclude claims (as much as possible) caused by a lack of building maintenance. This is certainly true of the above-cited roofing leak limitation. Commercial property owners can easily prevent such claims by conducting regular inspections of the building exterior and roof and making necessary repairs. Roofing materials do not last the lifetime of the building and require repair or replacement at specified intervals.
An insurance company cannot compel a property owner to properly maintain the building. But, these types of coverage limitations can provide a compelling reason to perform regular inspection and maintenance. After all, the cost of an uncovered water damage claim will likely far exceed the incremental cost of maintaining a building.
Commercial Property Insurance
For additional information about commercial property insurance, lessors risk policies, or other insurance-related questions, contact the professional staff at Safeguard Insurance today.