The Year's Worst Winter Property Loss Nightmare?

Each of us may have a favorite “poor me” story from this winter, which seems never-ending, with hundreds of thousands of people left without power in icy and frigid conditions. But a Missouri family of nine probably takes the prize for the worst winter property loss nightmare.

Sometime after the family left home for Florida, a pipe burst on the top floor of their Missouri home, and 44,000 gallons of water cascaded through the house before service was able to be shut off. The interior of the house was soaked, with ice oozing out through lower floor window frames and siding. Imagine a reverse ice dam of sorts. To make matters worse, the homeowners’ car broke down, so they couldn’t immediately drive home to check the damage. Moreover, none of them could fly home because yet another winter storm resulted in a swarm of canceled flights.

The Missouri ice castle damage is on the far extreme of the damage that many home and commercial building owners are experiencing this year. One of the first questions this family will face in seeking insurance coverage is: What caused the pipe to burst? The unendorsed standard homeowners policy (HO-3) covers damage to both the building and personal property caused by an accidental discharge or overflow of water or steam from a plumbing device: in this case, the pipe. However, the insurance picture isn’t so happy if the family hadn’t maintained heat in the home during their absence and the pipe froze, causing it to burst and release the water.

This provision in homeowners' policies voids coverage for damage to the building and personal property if heat is not maintained or the plumbing system drained. Therefore, the Missouri family could have coverage or not depending on this one fact.

A Deluge of Coverage Questions

Although the Missouri damage is just as extreme as this winter has been, the editors at FC&S Online® are flooded with similar situations each winter. For example, one agent posed not one, but two, commercial property damage questions:

We have two insureds for whom we need your opinion on separate commercial property losses. Both are covered on the ISO commercial property form, CP 00 10, with special perils, CP 10 30. In the first case, the insured's building (both exterior and interior) and business personal property sustained loss from "ice damming." The company adjuster is trying to deny all coverage for external damages based on the exclusion for damage from the "weight of ice and snow." What's your opinion?

Our second insured is a medical office. These doctors rent the entire building but occupy only the first floor of a three story building. During the winter, our insureds turned the heat off in the unoccupied portion of the building. As a result, the pipes in the unoccupied portion froze and burst, causing considerable damage.

The insurer is denying all coverage based on the requirement that the insured must "do [his] best to maintain heat in the building." We believe that because the insured maintained heat in the occupied portion, the loss should be covered.

In the first situation, there should be coverage. The current edition of the special perils form does not exclude damage caused by snow, rain, ice, or sleet except for personal property that is out in the open. There is, however, a clause in the form’s Limitations section that excludes coverage for damage to a building’s interior that results from rain, snow, sleet, or ice. There are two exceptions to this limitation:

There is coverage if the building is first damaged by a covered cause of loss and that damage permits the rain, snow, sleet, or ice to enter the building, and there also is coverage if the loss or damage is “caused by or results from thawing of snow, sleet, or ice on the building or structure.” In the case presented, both the building and personal property were damaged, and the damage was caused not by rain, snow, sleet, or ice but, rather, by the thawing of ice that had built up under the eaves. This cause of loss is covered by the special causes of loss form and should be paid.

In the second case, the insurance company is correct. The standard commercial property program excludes coverage for damage caused by freezing of plumbing, heating, air conditioning, or other such equipment unless heat is maintained in the building. In this situation the policyholder controlled the entire building even though part of it was not occupied. Since the policyholder turned off the heat in that part of the building, there is no coverage for the damage.

These last two questions point out some of the insurance issues that the Missouri family will face. They also point out, once again, the importance of carefully reading the policy and not relying on adjusting rules that were learned when an earlier form was in popular use.

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