The endorsement adds coverage for direct physical loss caused by water or waterborne material that backs up through sewers or drains, or overflows or is discharged from a sump, sump pump or related equipment. The coverage applies even if the overflow or discharge results from mechanical breakdown or failure. If the sump pump motor quits and water overflows from the sump pit and damages property in the basement, that damage would be covered.

What is not covered is loss caused by the negligence of the insured, or direct physical loss to the sump pump or related equipment caused by mechanical breakdown or power failure. For example, lightning hits the nearby transformer causing a power failure, which damages the sump pump motor, causing it to fail and thus flooding the basement. The water intrusion into the basement would be covered, but the damage to the pump itself would not be covered.

One of the more confusing issues is what exactly constitutes a back up or overflow. The terms are not defined, and courts will turn to a standard desk reference as that's what's available to the insured. Merriam Webster online defines backup as: an accumulation caused by a stoppage in the flow, and overflow as: to cover with or as if with water, Inundate or to flow over the brim of; to flow over bounds.

FC&S has long held that a backup requires a reversal of direction – the water flows down a drain, encounters a stoppage, then reverses direction and backs up and exits from where it originated. Water flowing down a drain and encountering tree roots blocking the drain, forcing the water to reverse direction and go backwards, for example.

Overflow is when something cannot contain the volume of water entering it. An insured starts filling the sink to do dishes, sees a squirrel eating the bulbs she just planted and runs out to chase the squirrel, then stops to talk to a neighbor, forgetting about the water. When she returns water has filled the sink and is flowing onto the floor because the sink can't hold the water coming in. That is an overflow.

This form provides coverage for both back-up from sewers and drains, and overflows or discharges from sumps, sump pumps and related equipment. Note the distinction between where coverage applies. Back-up coverage applies only to sewers and drains, and overflow or discharge only applies to sumps, sump pumps and related equipment.

B. Section I – Perils Insured Against With respect to the coverage provided under this endorsement, Paragraphs: A.2.c.(6)(b) in Form HO 00 03; A.2.e.(2) in Form HO 00 05; 2.h.(2) in Form HO 00 14; 2.j.(2) in Endorsement HO 05 24; 3.j.(2) in Endorsement HO 17 31; and 2.c.(6)(b) in Endorsement HO 17 32; are replaced by the following: Latent defect, inherent vice or any quality in property that causes it to damage or destroy itself;

Analysis

The form then makes a change to the wording in the perils insured against. It removes the exclusion for "Mechanical breakdown, latent defect, inherent vice or any quality in property that causes it to damage or destroy itself;" and replaces it with language excluding just latent defects, inherent vice or any quality that causes property to destroy itself. The exclusion for mechanical breakdown has been removed, since coverage is provided if the back-up or overflow is caused by mechanical breakdown or power failure.

C. Section I – Exclusions With respect to the coverage provided under this endorsement:

1. The Water Exclusion is replaced by the following: Water This means water which backs up through sewers or drains, overflows or is discharged from a sump, sump pump or related equipment as a direct or indirect result of:

a. 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; or b. Water below the surface of the ground, including water which exerts pressure on, or seeps, leaks or flows through a building, sidewalk, driveway, patio, foundation, swimming pool or other structure; or c. Waterborne material carried or otherwise moved by any of the water referred to in Paragraph 1.a. or 1.b. of this exclusion.

This exclusion applies regardless of whether any of the above, in Paragraphs 1.a. through 1.c., is caused by an act of nature or is otherwise caused. This exclusion applies to, but is not limited to, escape, overflow or discharge, for any reason, of water or waterborne material from a dam, levee, seawall or any other boundary or containment system.

However, direct loss by fire, explosion or theft resulting from any of the above, in Paragraphs 1.a. Through 1.c., is covered.

2. The Power Failure Exclusion does not apply.

All other provisions of this Policy apply.

Analysis

The form then rephrases the water exclusion.The standard water damage exclusion eliminates coverage for flood, surface water, waves, tides, storm surge, other similar events, back up and overflow. In this endorsement, the exclusion now states that water that backs up through sewers or drains, or overflows or is discharged from sumps and related equipment, as a result of floods, surface water, waves, tides etc is excluded. The exclusion also applies to water that escapes, overflows or discharges, for any reason, from dams, levees, or any other boundary or containment system. It is applying the water damage exclusion to back ups and overflows, so that the only coverage provided by the endorsement is for water that backs up or overflows from other causes of loss. For example, the insured with the overflowing sump pit because the sump motor was damaged by a power failure; the damage from that overflow would be covered. However, if a flood engulfs the area and the flood caused water to discharge from the sump pit, that would not be covered. So coverage for back-up and overflow is limited.

An exception is made for direct loss by fire, theft or explosion that results from any of the above. Likewise, the power failure exclusion does not apply.

As always, the endorsement only affects a particular portion of the policy; the endorsement states that all other provisions of the policy apply. Includes copyrighted material of Insurance Services Office, Inc., with its permission.