Exercise caution whenever coverage
questions get into the weeds
By Marc McNulty, CIC, CRM
Anyone who is new to the insurance industry will typically have several hurdles to overcome, followed by several sighs of relief afterward. This includes learning the basics of insurance, passing the needed licensing exam, learning the coverages and policy forms that are specific to the carriers you represent (which often differ from what you learned in pre-licensing courses), and learning the rating/processing software associated with each carrier.
You may even experience a few “aha” moments when knowledge you’ve gained during your career is elicited at the right moment, allowing you to wow your co-workers, prospects, or clients with your expertise! However, danger lies ahead should you assume that common coverages or exclusions are the same with each carrier in your lineup.
For example, you may speak with a prospect who is frustrated because their current insurance company denied a water damage claim. They tell you that they’ve had it with that carrier, so they are coming to you for options.
When they provide an overview of what happened, you find out that a long-term hidden leak from their roof caused the issue and you regret to inform them that most homeowners policies have an exclusion in them for repeated seepage or leakage of water. However, you tell them you’ll do your best to see if you can find them a carrier that may cover a situation like this in the future.
Or you may have a different case where your new-business prospect goes through their homeowners policy line by line and they ask you to explain what each coverage is. You provide them with the needed explanations, and eventually they arrive at the endorsements section. They then tell you they have something called utility service line coverage and you confidently explain what that coverage entails.
The prospect responds enthusiastically and informs you they have a private well along with a private septic system, so they want to make sure piping to those is covered. You advise them that you will include this type of coverage with your quotes and that the coverage is designed for any type of plumbing, electrical, gas, communication, or any other utility line that runs underground to their home.
A deeper dive into policy language in both instances will reveal that coverage varies—significantly—from carrier to carrier.
Just when you thought you were starting to figure it all out, you learned
that small nuances could affect coverage in a big way!
Example 1: Repeated leakage
You run your new-business quotes and, as promised, look at the policy forms associated with the options you have available to present. The first form, which is from a well-known national carrier, confirms your initial suspicions. Listed within the property exclusions is the following language:
Continuous or repeated seepage or leakage of water or steam, or the presence or condensation of humidity, moisture or vapor which occurs over a period of more than 14 days.
Since the prospect informed you that the leak most likely occurred over a period of several months, this policy form would exclude coverage, just as their current carrier did.
You then go to your second option, which is another national carrier. Unfortunately, their exclusionary language isn’t much different:
Seepage or Leakage, meaning constant or repeated seepage or leakage of water or steam, or the presence of condensation of humidity, moisture or vapor, that occurs over a period of weeks, months or years.
While a specific period of 14 days isn’t listed, a long-term leak would be similarly excluded.
Your third national carrier option has the “weeks, months or years” exclusionary language and then also lists out various systems and appliances from which such seepage or leakage can occur. However, you find an interesting carve-back afterward:
However, we pay for ensuing water damage that follows items 1. through 5. to building property on the residence premises that result from such seepage or leakage if the source of where the water or steam leaves the system or appliance is not able to be observed. That source is not observable because its location is hidden within the walls or ceilings, or above the ceilings, or beneath the floors but not below the slab or foundation floor of a structure. We do not cover rot.
This is significant, since it provides coverage for situations where the source of the seepage or leakage cannot be observed! You are pleased that you’ve found at least one option to present … but would be happier if you had a second option.
You’re thrilled to find that a super-regional carrier also has carve-back language within their leakage and seepage exclusion:
Caused by constant or repeated seep-age or leakage of water or the presence or condensation of humidity, moisture or vapor, over a period of weeks, months or years unless such seepage or leakage of water or the presence or condensation of humidity, moisture or vapor and the resulting damage is unknown to all “insureds” and is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure.
Bingo! Now you’re getting somewhere. Just for grins, you check with a small regional carrier you represent that utilizes ISO forms. You’re stunned to learn that the only “leakage” reference pertains to freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system and the only times the word “seepage” appears is in the pollutants exclusion.
You soon realize you’d better check the remaining endorsements that would be attached to the proposed policy, as exclusionary language may be found there. Otherwise, the ISO HO 00 03 and HO 00 05 forms do not exclude coverage based on repeated seepage or leakage situations.
Example 2: Utility service line endorsements
Since you had luck with the ISO forms in the last case, you check out the HO 06 69 (03 22) Utility Line Expense Coverage endorsement for your second prospect, but are disappointed to find that the definition of “utility line” does not include any portion of a “septic tank or septic system” nor a “water well or water system.”
You start checking with your carriers once again and find that coverage differs slightly among endorsements. The next example you find states the following:
Covered service line means exterior underground piping and wiring, including permanent connections, valves, or attached devices providing one of the following services to your residence premises:
(f) Waste disposal; or
The endorsement contains exclusions for septic systems but has a carve-back for “covered waste disposal piping run-ning from your dwelling or other structure to a septic tank.” There is also an exclusion for “water wells, including pumps or motors,” but the form is silent on piping running from water wells.
After further investigation, you find two more endorsements that exclude coverage for septic systems and wells, one of which has a carve-back almost identical to the last one you found.
You rub your eyes, growing weary of examining utility service line endorsements, when something else jumps out at you: the covered perils. Two of the forms include coverage for “vermin, insects, rodents, or other animals,” while the others do not list such pests as covered perils.
In addition, one form provides additional perils for “Weight of equipment, vehicles, animals or people,” while another provides coverage for “External force from a shovel, backhoe or other form of excavation.”
Just when you thought you were starting to figure it all out, you learned that small nuances could affect coverage in a big way! Don’t worry; even experienced agents need to stay on top of this, as all companies change their forms over time.
The bottom line: Don’t guarantee coverage. While you can safely tell your prospects and clients that their home-owners policies cover them for known perils such as fire, explosion, or vandal-ism—of course subject to the conditions and exclusions within the policy—be sure to exercise caution whenever coverage questions get into the weeds.
Your best bet is to refer them to the policy language and remind them that the various circumstances leading up to the loss will dictate if coverage applies.
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties at the firm. You can reach Marc email@example.com