After weeks of record-breaking temperatures and oppressivehumidity, much of the country is looking to cool off. Swimming pools are perfect for beating the heat, but they can alsopresent some insurance complications.

Such was the case for an FC&S subscriber's client,who was insured by a Homeowners' policy form HO-3. The client'sabove-ground swimming pool collapsed due to deterioration. Waterescaped and went into the basement of the residence through thewalls and back door, causing damage to the building.

Does the water-damage exclusion on the HO-3 void coverage forthis type of loss?

Under previous iterations of the HO-3, an argument could be madefor coverage for damage to the building from this cause. Thewater-damage exclusion on older versions of the form voidedcoverage for damage from natural occurrences of water, such asfloods, surface water and backed-up sewers.

Read MoreFC&S Blog Posts at the Coverage Cafe

Even though the pool water traveled over the surface ofthe ground to reach the home and damage it, surface water generallyis held to be water “which is diffused over the surface of theground, derived from falling rains or melting snows, and continuesto be such until it reaches some well-defined channel in which itis accustomed to flow and does flow with other waters.” Thisdefinition was used in Georgetown Square v. United StatesFidelity and Guaranty Co., 523 N.W.2d 380 (1994).

However, the 2011 version of the form added the followingwording: “This Exclusion A.3. [Water] applies regardless of whetherany of the above, in A.3.a. through A.3.d., is caused by an act ofnature or is otherwise caused.”

By adding “or is otherwise caused” to this exclusion, the typeof loss described would no longer be covered.

The form also now states that the water exclusion applies to theescape, discharge or overflow—for any reason—of water or waterbornematerial from a dam, levee, seawall, or any other boundary orcontainment system, which would include an above-ground pool.

That addresses damage caused by the escape of water, but whatabout the water itself?

A country club with a Business Owners Policy (BOP) experienced aloss when a pipe leading from the swimming pools broke and waterwas lost out of the pools.

The insurer denied the claim, citing the provision that “coveredproperty does not include… land (including land on which theproperty is located), water, growing crops or lawns.”

Does the water lost by the insured fall under thislimitation?

If one reads the word “water” in this limitation in context, itis listed along with other things that occur in nature—land,growing crops and lawns. The water lost from the pools is notnaturally occurring water, such as a stream or a pond on theinsured's premises.

The water that the country club lost due to the plumbing failurecould be considered the club's personal property. It had alreadypassed through the water meter, and the club was billed for it. Itshould be a covered loss under the BOP.

What types of swimming-pool losses have you encountered, and howdid you handle them? Let us know in the comments below.