Water from nonfunctioning sumps and from backup through drains in basement floors can cause substantial loss ... not covered by basic homeowners policies but may be covered by an optional endorsement.
By Roy McCormick
Water from nonfunctioning sumps and from backup through drains in basement floors can cause substantial loss ... not covered by basic homeowners policies but may be covered by an optional endorsement.
Basements present a homeowners exposure that must not be overlooked. The first step in providing necessary protection and avoiding uncovered loss begins with determining whether or not the basement contains a sump and/or floor drains. The next step, short of an inspection, is to discuss personal property that is stored there; whether improvements such as the addition of a social room have been made; and if heating, cooling and refrigerating equipment are located in the basement.
Water from nonfunctioning sumps and from backup through drains in basement floors can cause substantial loss, varying according to the nature of the property--real and personal--that is exposed and damaged. Such loss is not covered by basic homeowners policies but may be covered by an optional endorsement.
A water damage exclusion common to homeowners policies applies to damage caused by water from three sources:
1. flood, surface water, waves, tidal water or overflow of a body of water
2. water below the surface of the ground that exerts pressure on or leaks through or into a structure
3. water that backs up through sewers or drains or overflows from a sump.
Our immediate concerns are with the latter and its antidote.
Modification of language in the pertinent exclusion in the latest editions of ISO and AAIS homeowners policies clarify intent and minimize the potential for dispute. ISO's 2000 edition of Special Form 3, for example, extends the backup exclusion to specifically exclude damage caused by waterborne material. The counterpart AAIS form specifies "water or sewage which backs up through sewers or drains...." The clarifying language in the exclusions is in accord with recent court conclusions about the meaning of water in the context used.
The Tennessee Court of Appeals, in 1995, found the following conclusion of a California Court of Appeals persuasive: "In our view, the term 'water' which backs up through sewers or drains is unambiguous. Water is clearly the major component of sewage effluent...and the damage was caused by the backup of water containing sewage. The degree of purity is irrelevant because a lay person reading the policy would understand that water which backs up through a sewer would necessarily contain sewage...."
The Tennessee court affirmed the judgment of a trial court in favor of an insurer and against the insured home owners, who had made claim for raw sewage damage to their property caused by backup resulting from blockage in the city's sewer system. The insureds had argued, while acknowledging that water as well as raw sewage backed up into their home, that the exclusion on which the insurer relied applied only to water, not to raw sewage. The appeals court and others have not bought that argument.
Subject to additional premium and underwriting guidelines, policies may be endorsed to cover basically excluded damage from water backup and sump overflow. All such endorsements modify the basic policy to cover losses to an insured dwelling, related private structures or personal property caused by water that either backs up from a sewer or drain or overflows from a sump, sump pump or similar system. (A sump is a pit or well where water is allowed to drain or to collect.) A special deductible, often $250, applies to any occurrence covered by the endorsements. A maximum limit of liability, e.g., $5,000, is specified in some; in any event, the optional coverage is subject to the policy's A, B or C insurance limits.
ISO's 2000 endorsement, Water Backup and Sump Discharge or Overflow HO 04 95, is an example of updating to clarify intent and minimize uncertainty. Insurance is modified to include protection for losses caused to covered property by water or waterborne material which either backs up through drains or sewers, or which overflows or is discharged from a sump, sump pump or related equipment.
It is made clear in the updated endorsement that coverage is provided even when the overflow or discharge from a sump, sump pump or related equipment is due to mechanical breakdown of the pump. Reasonably, cost of repair or replacement of a pump would not be paid in such circumstances.
We know the importance of double checking the renewal of policies. Professional agents and brokers can forestall problems by making certain that optional coverages wanted by insureds continue to be effective under renewal policies. Water backup and sump overflow coverage is a prime example. The Appellate Court of Illinois, First District, First Division underscored the importance of continued care in its 1998 decision in Case No. 96-4354.
The insurer denied coverage when property in the insureds' basement was damaged from backup from drains. It contended that the insureds did not elect or pay for continuing the optional coverage for the exposure that was offered in the renewal notice. (The expiring policy had included backup coverage.) The insureds alleged that the insurer did not provide "plain, clear and conspicuous notice" of nonrenewal of drain backup coverage. The court concluded that there was ambiguity in the pertinent language of the renewal notice and that the insureds had no reason to believe the insurance, as renewed, was changed.
When arranging homeowners insurance, be sure to inquire if the subject has a basement. If the answer is yes, explain the pertinent exclusion in the policy and offer the option to add water backup and sump overflow coverage.
We are reminded of the hypothetical meeting of next door neighbors over the back fence. Both carried identical homeowners policies except that one had chosen the option of including water backup and overflow coverage. The other was not pleased when his insurer denied his claim after city sewer blockage caused backup in both homes. Don't let this happen! An insured may not want the option, but discussion of it could ease a potential problem.
Lest there be confusion or uncertainty, water damage from flooding or from water below the surface of the ground continues to be excluded when a drain backup or sump overflow endorsement is made effective. *