Filed Under:Agent Broker, Commercial Business

Water damage protection after a sewer, drain or pump loss

Coverage Q&A

Consider the facts: Water damage caused by overflowing sewers like this one in New Orleans during Tropical Storm Frances, may not be covered. (AP Photo/Bill Haber)
Consider the facts: Water damage caused by overflowing sewers like this one in New Orleans during Tropical Storm Frances, may not be covered. (AP Photo/Bill Haber)

Analysis brought to you by the experts at FC&S Online, the unquestioned authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins.

Question: We have a water damage claim on a hazard policy caused by a sewer back-up due to excessive flooding in the area.

The homeowner's policy includes the following language:

"Exception to C.(6): 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: (1) drain, or water, steam or sewer pipe, of the "residence premises"....

In the policy, water is defined as "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" ... (along with) water that:

  1. Backs up through sewers or drains; or
  2. Overflows or is otherwise discharged from a sump, sump pump or related equipment;     

In your opinion, is the damage from the sewer water covered?

— Texas Subscriber

Related: 4 issues that cause PVC pipe failure

Answer: The exception to c(6) is for the overflow or accidental discharge of water from a sewer pipe off the residence premises. So you have an issue of fact: Did the sewer pipe off premises cause the loss or was the loss caused due to the pipes on the premises? Note that the water exclusions for surface water and water below the surface of the ground do not apply to loss under c(5) or (6). Remember that 5 relates to mold or fungus hidden behind walls, ceilings or floors.

However, water that backs up through sewers or drains is clearly excluded, as is flooding. The insured would need to have added the Water Back-up and Sump Discharge or Overflow endorsement HO 04 95 in order to have coverage.

Related: Homeowners' Claims: Water Back-Up, Overflow, or Discharge?

Water backup is not surface water

Question: We have a carrier that is excluding a water damage claim where there is a water back-up endorsement that applies.

It states we will pay up to the amount shown in the Declaration, for direct physical loss to property covered under Section I caused by water, or water-borne material, which:

1. Backs up through sewers or drains, but not as a direct result from flood or surface water.

2. Overflows or is discharged from:

        1. Sump, sump pump; or
        2. Related equipment: even if such overflow or discharge results from mechanical breakdown or off premises power failure but not as a direct result of flood or surface water.

This coverage does not apply to direct physical loss of the sump pump, or related equipment, which is caused by mechanical breakdown.

The HO3 policy states:

A. Coverage A – Dwelling And Coverage B – Other Structures

1. We insure against risk of direct physical loss to property described in Coverages A and B.

2. We do not insure, however, for loss:

        1. Excluded under Section I – Exclusions;

SECTION I – EXCLUSIONS

A. We do not insure for loss caused directly or indirectly by any of the following.

Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

3. Water Damage

Water Damage means:

        1. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
        2. Water or water-borne material which backs up through sewers or drains or which over-flows or is discharged from a sump, sump pump or related equipment; or
        3. Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure; caused by or resulting from human or animal forces or any act of nature.

The company is saying that they will pay for backups through sewers or drains but not as a direct result from flood or surface water. The water came in through drains in the home. This was not a case of drains on the street backing up and flooding the home through the foundation. It seems to be a misinterpretation of policy language favoring the insurance company unfairly.

We have denied this claim due to the backup occurring as a result of the sewer filling up due to an inundation of the city’s sewer system from naturally occurring rain water. There was no mechanical breakdown or power outage causing the sump pump to fail. The policy excludes water damage as noted above, regardless of any other cause or event contributing concurrently or in any sequence to the loss. What are your thoughts on the matter?

— Ohio Subscriber

Answer: Rain water is not surface water or necessarily flood water. Surface water is an accumulation of water that meanders along the ground outside of any boundaries of lakes, streams, ponds, etc. Rain water that falls into and accumulates in the sewer is not surface water, it is rain water. Flood water, like surface water, accumulates and inundates large areas of land; rain water collecting in a sewer is not necessarily flood water. The carrier is misreading the exclusion. Depending on the nature of the backup, which you have not described for me, there should be coverage.

Related: Unusual risks of pool ownership

Covering sewer or drain backup

Question: Our insured has a water backup or sump pump overflow endorsement on his homeowners policy, which states the insurer covers direct physical loss caused by "water or sewage, which backs up from outside the residence premises plumbing system through sewers or drains." A heavy rainstorm occurred, and water entered the residence through the drain in the basement floor.

Because the insured has a radon remediation system installed in the drain, the engineer sent by the insurer reported that the water must "have come into the drain system via the perforated pipe and the drain could not handle the flow. Thus the water backed up onto the basement floor." The insurer then denied the claim, citing the exclusion for water below the surface of the ground, and then adding that the surface water below the ground entered into the perforated radon remediation system.

We think this is a covered loss and would like your thoughts.

— New York Subscriber

Related: Does your homeowners' policy cover these three things

Answer: The insured has paid an additional premium for backup of sewer and drain coverage, and it appears his claim is being denied based on a misreading of the endorsement language.

It does not really matter if the water entered the drain pipe because the pipe was perforated; the water came from outside the residence premises plumbing system and then forced its way up through the residence premises system by way of the basement drain. That is all that is necessary to trigger coverage. The drain's inability to handle the flow (as per the engineer's report) is meaningless — if this were the case then the insurer could deny any loss, for which the insured has paid an additional premium, based on the drain's inability to handle the flow. That is, after all, what essentially constitutes a water backup through a drain.

According to Dan Cochran of Dwyer Plumbing in Northern Virginia told The Washington Post that lack of maintenance causes the most sump pump failures. (Photo: iStock)

Dan Cochran of Dwyer Plumbing in Northern Virginia told The Washington Post in 2008 that lack of maintenance causes most sump-pump failures. (Photo: iStock)

When does accidental discharge peril apply?

Question: We have a question here in the office that we cannot agree on as to coverage, and would appreciate your input. Our insureds used the toilet in the basement family room, and some time later realized the carpet was wet. The husband found the toilet had continued to run so that water was coming out of it and running onto the floor. A defective flap caused the malfunction.

Related: 8 tips to prevent basement flooding

The insureds have a septic system. We spoke with the septic maintenance person, and he said the tank was full of water; he thought the pipe leading to the drain fields was plugged, thereby reducing the output. More water was coming in than going out because of the constantly running toilet, and because the water had nowhere to go it overflowed the toilet. The insured says the septic tank was pumped out the previous year, and when he replaced the toilet flap, there were no further problems with the toilet or the septic system.

The insured has a homeowners policy similar to the standard ISO HO 00 03, with a backup of sewer or drain coverage endorsement. The endorsement has a $2,000 limit, which we paid.

But now the insured has an attorney, who insists that because the water entered the basement through the toilet, and because the toilet’s malfunction caused the loss, the "accidental discharge" peril applies and therefore more coverage is available.

Could you please review this scenario and the policy language and give us your thoughts?

— Iowa Subscriber 

Related: Slippery When Wet

Answer: We researched septic system design and reviewed the policy language, and think that, in the final analysis, coverage comes down to questions of fact rather than interpretation of the policy language.

First, some history of the development of the backup of sewer and drain endorsements. They were intended to give coverage when a municipal system failed in some manner, sending water, and possibly sewage, back through the sewer pipe and into the insured’s plumbing system. But this particular insured is not connected to a municipal system; he has, rather, a "self-contained" unit. Having said that, the insured should not receive unintended coverage under the "accidental discharge of a plumbing system" peril. Under those circumstances, there would be no reason for the backup of sewer and drain endorsement.

So, the direction to take is to see at what point the septic system functions as a municipal system might. From looking at diagrams, it appears that once water leaves the pipe from the dwelling into the system and goes into the septic tank it loses its character as waste water from the insured’s plumbing system and becomes something more. Typically a septic tank contains three levels: top is scum, middle is waste water, and the bottom is sludge. It is the middle waste water that is sent out of the tank through a pipe into a drain field. Both pipes should have baffles to prevent scum or sludge from entering the house or drain field. The pipe into the system is therefore part of the plumbing; the septic tank itself and the pipe leading away would appear to take the part of the municipal sewer or drain.

Now, in this scenario, the malfunctioning toilet flap caused the water to continue to run. (Septic tank owners are cautioned about the dangers of too much water entering the tank at once.) Although inadequate maintenance, mechanical breakdown, and wear and tear are not covered, any ensuing loss not excluded is covered. In this case, that would be both the backup of sewer and drain and accidental discharge.

The septic maintenance person’s statement is that he thought the outgoing pipe was clogged. There does not seem to be proof one way or another. But if it was, then we think the backup of sewer and drain endorsement would provide the only coverage, since the outgoing pipe leads from the system. The "accidental discharge" peril would not apply.

However, if the blockage occurred on the dwelling side of the tank, or if the pipe was so full that it could not accept any more water, then the "accidental discharge" peril would be triggered and the water damage would be covered under this cause of loss.

As we stated earlier, coverage comes down to the specific facts in this situation.

See also:

Top 10 states for homeowners' insurance protections

7 tips to protect your family against thunderstorms

Rising flood insurance costs a growing burden to N.Y. City

Analysis brought to you by the experts at FC&S Online, the unquestioned authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins.

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