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. We'd appreciate your thoughts.

FC&S Answer:

In the first case, the exclusion the adjuster cites is found in the CP 10 20 04 02, not the CP 10 30. In special form CP 10 30, damage done by ice damming to both the building and the contents inside the building is covered. In the "Limitations" section, the form excludes coverage for damage "resulting from rain, snow, sleet, or ice" to the interior of a building or property contained in it. However, it goes on to give back such coverage if the damage is caused by the "thawing of snow, sleet, or ice on the building or structure." That is what happens with ice damming. Water freezes, and, upon thawing, backs up under shingles or other roofing material.

In the second case, however, the result is not as fortunate for the insureds. Since they rented and had access to the entire building, it was their responsibility to make sure that the heat was on in the entire building. The form clearly says that the insured must do his or her best to maintain heat in the building.

They had access to the entire building and didn't maintain the heat; as a result, the pipes froze and burst. The insurer is properly denying that claim.

Our next question deals with hail accumulation in gutters and whether that should be covered as an ice damming situation:

Question:

Our Texas insured carries a CP 10 30, Causes of Loss – Special form. Hail accumulated in gutters, blocking the downspouts. Accompanying rain overflowed the gutters and entered the building below the metal roof. There was no damage to the roof by hail that allowed water to enter. Does the limitations section exclude interior water damage as there was no damage by covered cause of loss to the roof or walls, or is coverage extended as it is an ice damming situation (thawing of ice)?

FC&S Answer:

The exception to the interior water damage limitation for thawing of ice would not apply in this instance. It is not the thawing of the hail that caused the water to enter; it was because the hail was in its solid form and blocked the downspouts that the rain overran the gutters and leaked inside. The damage would not be covered.

Finally, our pièce de résistance is a five-part question dealing with an older church building with a tower structure that lends itself to ice damming.

Question #1:

If a carrier accepts a commercial building (a church built a century ago with a large dome and other uncommon features) and insures the property without any inspections, is the carrier estopped from denying coverage if a preexisting condition (formation of ice dams) allowing water penetration damage?  In other words, is the building accepted in an "as is" condition?

FC&S Answer:

An applicant for insurance should submit a fully completed application for coverage. Typically, ACORD 125 and ACORD 140 are used for this purpose to insure commercial properties.

It is the carrier's obligation to review the application and request any and all additional information necessary to insure the risk meet's the insurer's underwriting guidelines.

ACORD 125 for example lists as an attachment a Loss Summary, indicating that the applicant should submit a loss summary of prior losses, the period to be determined by the insurer.

ACORD 140 for example has a space to enter building improvements, among other additional information specific to each building.

During the application review process, the carrier has the opportunity to request any additional information necessary to determine the building's acceptability for coverage, including the opportunity to complete any applicable inspection. The carrier's failure to inspect is on them, unless the insured deliberately omitted information on the application. Therefore, the carrier should not be able to go back and deny coverage for a pre-existing condition on a building they did not inspect or gain enough information on to evaluate it's acceptability for coverage.

Question #2:

Also, about the church, the ice damming has been occurring since before 1980 but the church for the entire pre-1980 to 2019 time period retained contractors to fix the problem.  If the contractors repair work ended up being deficient, and the church attempts to comply with its duty to maintain by hiring contractors or is the ineffectiveness (maybe negligence) of the contractors imputed to the church thereby blaming the church for failure to maintain?

FC&S Answer:

As a covered cause of loss, ice damming, or water damage due to ice damming, is not a covered cause of loss under the broad causes of loss form, CP 1020; however it is not excluded under the special causes of loss form, CP 10 30. In the "Limitations" section, the form excludes coverage for damage "resulting from rain, snow, sleet, or ice" to the interior of a building or property contained in it. However, it goes on to give back such coverage if the damage "results from thawing of snow, sleet, or ice on the building or structure." That is what happens with ice damming. Water freezes, and, upon thawing, backs up under shingles or other roofing material. There is no exclusion in the form for pre-existing conditions; and since the insured hired contractors to maintain the building there was no failure to maintain. The church did everything they could to repair the building and avoid losses; I don't know that the failure of the contractors can be imputed to the church as failure to maintain. If subcontractors performed the work, there might be a subrogation potential against the subcontractors who performed the faulty work.

Question #3:

Also, about the church in 2015 there was a water leak from the third-floor dome and an elaborate organ suffered damage.  The carrier sent two people to assess the damage and they went to the 2nd level and probably the 3rd level where the dome is located.  They restricted themselves on the 3rd level because the dome was quite high, plus the lighting is very poor.  The organ was finally fixed, and the carrier extended the time to fix to obtain the recoverable depreciation in a letter and asked that the church should advise when the repairs are completed which happened in 2017 which might justify an inspection and the recoverable depreciation was paid without any inspection.  Here is another failure to inspect.  What impact does this have because in the spring of 2019 when more water leaks occurred (ice damming) and the carrier's engineer plus the church's engineer undertook inspections suggesting faulty construction dating back to the 1970's (tornado repair) and long term seasonal hidden water penetration that dried and recovered after a slight weakening every year and then became wet again during winter.  While the 1970's repair of the roof dome weakened the structure, it was still adequate for many decades.  The church attempted to have contractors fix the problem covered in Question #2.  Is the church at fault?  The date of loss states July 2019 when the claim was reported.  Is the claim payable (church's engineer stated in late 2019 early 2020 that the damage was caused by ice damming which explains his earlier inconsistent reports rendered without full information which is covered)?

FC&S Answer:

Refer to the answers for Questions 2 and 3 above. If there is a definite (even ongoing) occurrence of ice damming, there will be coverage for that damage. The ice damming appears to be a re-occurring issue based on the particular construction of the building, that the insured has attempted to maintain. If the insurer had inspected the property they may have been able to make additional recommendations to prevent further damage; however that was not done and given that the insured hired contractors to perform the maintenance it is questionable whether anything further could have been done to prevent the ice damming. Therefore, there will be coverage for the damage.

Question #4:

The church's sanctuary, Sunday school rooms, and choir practice in the damaged structure are unusable.  The church uses other less adequate buildings on the church property but there is no incurred expense.  Is business interruption for loss of use recoverable?  Would fair rental value be the basis for computing loss of use?

FC&S Answer:

Business income coverage is available if the loss of use is due to the ice damming occurrence. However, since the insured is able to continue operations by using other buildings on the property, has there been a loss of income due to the loss of use of the damaged structure? If there is any additional expense the insured had to incur in order to use the other buildings, then those additional expenses would be recoverable as extra expense. For business income loss of use to apply, the insured must have a computed net loss of income that is a consequence of the ice damming. The calculation would be net income that would have been earned or incurred but for the loss, and continuing operating expenses, including payroll. If income did not decrease because of the ice damming, then there would be no recoverable business income loss. Our analysis is that since the property wasn't rented to others, there's no rental income to be lost. For rental income to be paid the property must have been rented to others before the loss, and as a result of the loss the insured has lost that rental income through the displacement of the tenant. If the insured has not lost any income, and has not incurred any extra expenses due to the inadequacy of the alternate spaces they are using, such as the need to rental additional space elsewhere, then there is no business income or extra expense to be paid.

Question #5:

About the church (and please comment about the impact of this information on the claim), there was tornado damage in the upper part of the church where the dome is located in 1976. In 1978, the contractor that repaired the damage, according to the carrier's engineer, lowered the structural integrity when the dome was removed during repairs and ultimately reinstalled. The church's engineer agrees that while the stress was increased in 1978, the structural integrity was sufficient without any observable sag or any other indication of a problem to effectively support the roof for 41 years until the 2019 ice damming claim. Further, and consequentially, the lessening of structural integrity in 1978 most likely had nothing to do with the 2019 ice damming and ensuing water damage in the interior. While negligent construction is excluded from coverage, if there was negligence in 1978, it likely failed to cause or contribute to the ice damming in 2019. Finally, the dome at the top of the church requires about 30' of ladders to reach the interior part of the dome. However, insulation covered any evidence of water penetration; plus there is poor lighting. After removing the insulation, only then was any evidence of water penetration observable. After the 2015 organ claim, the Brotherhood persons who went to the church would have needed to scale the ladders to the top and remove insulation for a full inspection, which never happened. Brotherhood declined a final inspection as a condition for paying recoverable depreciation and issued the payment to the church.

Included with the documentation are the following documents:

• 11-20-19 denial letter
• Memo with policy excerpts and comments

FC&S Answer:

In reading all of the documentation, it remains our opinion that the ice damming claim(s) should be covered as the direct damage cause of loss.

To explain, the weight of snow, ice or sleet, or damage from the thawing of such, is a covered peril. The water seepage is a consequential cause of loss arising from the ice damming; had there been no ice damming or thawing of ice, there would have been no water seepage; thus coverage should apply.

The exclusions for contamination or deterioration, and defects, errors or omissions are not applicable as the direct cause of loss is the ice damming. Had there been no ice damming, there would have been no water seepage and no contamination or deterioration. Also, the structural integrity of the church was not impacted until the 2019 ice damming claim. Further, in this case the insured has not intentionally or otherwise failed to act to correct any issues that would indicate a negligence or lack of maintenance of the building.

This claim is an accurate depiction of concurrent cause of loss; where the initial cause of loss (ice damming) is a covered cause of loss that allows an otherwise excluded claim (deterioration, defects, errors or omissions) to be covered. In other words, the only reason the exclusions do not apply is because the initial cause of loss is covered.