6.4 - Case Study: Applying the Water Damage Exclusion

Question 1

Claim Scenario

Answer 1

-insureds do a renovation on their home, including plumbing and electrical systems, redoing the kitchen, bathrooms and flooring
-insured advised their Broker regarding the reno prior to starting the work
-renos complete and insureds move back into the home
-after renos, insureds take a vacation for 3 weeks
-when they return, water is coming through main floor ceiling, basement contains 3 feet of water, and there is mould on many surfaces
-insureds turn off water, and discover that one of the water valves in the recently renos second-floor bathroom has failed
-insureds have a Homeowners Comp form policy

Question 2

Claim Scenario - coverage analysis

Answer 2

1. review insured perils - comp = all-risks so this particular loss falls within the scope of the insured perils clause
2. any exclusion clauses triggered?
   -distinguish 3 types of damage found in the example:
   >failed water valve - failed as it was not properly installed by the original plumbers during the renos. Plumbing costs to the water valve are not recoverable under the policy
   >water damage to house and contents - water damage is excluded, but an exception to the exclusion applies here because the LoD resulted from the sudden and accidental escape of water from within a plumbing system that is located inside the dwelling. Exclusions of Freezing, and seepage or continuous or repeated leakage or discharge of water do not apply to this loss. the water damage was not caused by escape from sewer, septic system, or sump, by surface or ground water, by shoreline ice buildup, or even by flood. The claim does not entail loss to a water system or domestic water container, and the building was not vacant or under construction. No water damage exclusions apply
   >mould damage now present in the home because the insureds were on vacation and did not immediately discover the water escape. The policy clearly excludes LoD caused by fungi or spores, however, the intent of the policy here is to exclude mould damage that is inevitable and not the result of an insured peril. Further the insureds mitigated the damages immediately taking action once water escape was discovered. Therefore the exclusion of loss due to fungi or spores do not apply under these circumstances

CONCLUSION: coverage is provided for the water and mould damage, while the relatively minor cost of correcting the plumbing is excluded