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Last Post 01/09/2013 10:38 AM by  pondman
Hypothetical Question for Discussion
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mcgrawreed
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01/03/2013 8:48 PM

     

    The following is hypothetical but based on actual claims.

     

    Coverage: The insured has an ISO HO-3 with 04/90 endorsement and coverage for sewer/drain backups. Home is insured to 80% of value and maintenance/housekeeping is above average.

     

    Loss: On 01/01, the insured had a backup of the toilet in the guest bathroom and called her contractor. Contractor arrived and cleaned up the sewer water on the tile floor, placed air movers and dehumidifiers for three days, and ran a snake down the sewer line which appeared to have cleared the problem. On 01/10, the guest bathroom toilet backed up again and a backup of the Laundry Room washing machine drain line and the Kitchen sink. Contractor was called again and this time performed a leak detection that found the sewer line was collapsed due to deterioration. Contractor performed water remediation operations again and insured filed a claim with a DOL of 01/10.

     

    Inspection: No damages were noted or reported to the guest bathroom but water damage to the lower base cabinets in the Kitchen and water damage to the wall in the Laundry Room were noted and related to the sewer back up. The contractor submits an estimate of repairs that includes the water remediation 01/01 and 01/10. The adjuster agrees to the 01/10 charges but denies the 01/01 charges as there was no damage to covered property from the water. Contractor argues that the sewer water on the tile was, essentially, damage that needed to be addressed. He says that the first cleanup was because of the broken line and therefore related to the loss. His opinion is that the DOL should properly be 01/01 and that 01/10 is a continuation of the loss.

     

    Question: As the claims supervisor would you say that the remediation prior to the DOL is covered or excluded? Granted, appraisal, litigation and court decisions would eventually decide the matter, but that is tomorrow and this claim is on your desk today and requires a decision.

    Steve McGraw Professional Adjuster
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    pondman
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    01/03/2013 9:48 PM
    1/1 Denied - excluded
    Give them what they want, when they want it, and how they want it !
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    HuskerCat
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    01/03/2013 11:04 PM

    Good question Deputy Fyfe...

    That's an old edition that I don't have access to, but given the more recent editions...I don't think the Date of Loss is at issue; rather, the Cause of Loss.  Kinda like "yeah, we had hail....and then 3 weeks later it rained really hard, and now the ceilings are wet". Well, what if the downpour had happened at the same time as the hail?  The carriers I work for will consider it as one claim...that's just the way, and I can't be more pleased because that's tough to remediate or prevent if it happens in that sequence.

    It seems from your description, that you have one Cause of Loss that maybe wasn't remedied at first notice.  The more recent editions of the HO3 will exclude sewer backup (unless a separate limited endorsement gives back limited coverage), unless it is proven to be a case of "collapse" as defined by the policy.  The "collapse" provision may then preclude coverage for the "collapsed property (drain pipe)" but not the ensuing damage.

    More specific policy language is needed, and I'm only working off of an old memory that is commercial brainwashed at the moment, and hasn't worked HO's in a number of years.

    Like we've all been told..."RTFP" (politically correct vernacular).  But if you're an IA, you don't have the "FP" to read, so it will be a carrier decision.  Tell us as much as you can, and it's our call.  I get this everyday, never a dull story and never a new scenario.  Gotta love you all out there in the field flying blind sometimes, but still doing your best.

    Keep that bullet in your pocket!

     

     

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    Medulus
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    01/03/2013 11:19 PM
    First, this is not a sewer backup as defined in most policies unless the sewer is backing up from beyond the residence premises. I did not read your scenario as that, but perhaps you can clarify where the crushed line is located. If it is a crushed line on the residence premises, it is overflow from a plumbing system, which is covered in the HO3 without any special endorsement. The classic question to ask, crude as it may be is quite simply: "Whose s**t is it?"

    Second, attempts were clearly made to mitigate the damage when the occurrence first happened. That they guessed wrong about the nature of the clog is immaterial. Omniscience is not required by the policy. I can almost guess what carrier (with a 50/50 chance of being right) would make a boneheaded (being kind) or unethical (at worst) call like this. It is clearly one event, one occurrence, and the second cleanup is warranted as part of the same claim. There is no intervening cause of loss. There is no reason for denial of the second cleanup. If I were a public adjuster or an attorney, I would absolutely love to sink my teeth into this one. The carrier is straining at a gnat and swallowing a camel. And were I not in a public forum, I would tell you what I really feel.
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    DStin214
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    01/04/2013 11:43 AM
    "collapsed due to deterioration" That is your keyword right there. Anything that is deteriorated, molded, rusted, corroded or run down from general up-keep and maintenance is not covered. This is not a "back up of sewer and drain" claim. This is a leak caused by deteriorated pipes. Be sure to write good file notes as to why this material is not covered, and contact your management when dictating your denial letter.
    http://www.insurance-adjuster-help.com
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    Medulus
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    01/04/2013 11:57 AM
    Collapse can be covered even when caused by deterioration, as long as it is hidden deterioration. I haven't taken a look at the collapse language to see if it fits this scenario. It may. I wouldn't want to lightly dismiss the Husker Guy. He has a pretty good mind for these things. And I agree that this is not a sewer backup claim unless the crushed pipe is part of a city sewer system beyond the insured's property. I don't believe this is a deniable claim at all. It is backup or overflow from a plumbing system, which is almost always due to some type of deterioration, but again it is hidden deterioration and the date of loss is the date of discovery. This makes it sudden and accidental rather than wear and tear or deterioration. I would not only side with the insured and his/her contractor on this, I would fight for coverage in a coverage committee scenario.
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    Medulus
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    01/04/2013 3:11 PM
    Here's the rule: When in doubt, read the policy, and when not in doubt read the policy.

    Here is the policy language about collapse:

    "Collapse. We insure for direct physical loss to covered property involving collapse of a building or any part of a building
    caused only by one or more of the following:

    a. Perils Insured Against in COVERAGE C – PERSONAL PROPERTY. These perils apply to covered buildings and personal
    property for loss insured by this additional coverage;
    b. Hidden decay;
    c. Hidden insect or vermin damage;
    d. Weight of contents, equipment, animals or people;
    e. Weight of rain which collects on a roof; or
    f. Use of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction,
    remodeling or renovation.

    Loss to an awning, fence, patio, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall,
    bulkhead, pier, wharf or dock is not included under items b., c., d., e., and f. unless the loss is a direct result of the collapse of a building.
    Collapse does not include settling, cracking, shrinking, bulging or expansion.

    This coverage does not increase the limit of liability applying to the damaged covered property."

    Collapse will not apply here, not because of deterioration, but because collapse must involve collapse of a covered building or portion of a building.
    Underground pipes are expressly excluded from the definition.

    Now, on to the exclusion for water damage:

    "1. 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.

    c. Water Damage, meaning:

    (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 which backs up through sewers or drains or which overflows from a sump; or

    (3) Water 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.

    Direct loss by fire, explosion or theft resulting from water damage is covered."

    My contention remains that, unless the sewer line is crushed beyond the insured's property, causing sewer water to back up through the commode, it does not fit this definition. If the crushed sewer line is on the insured's property, this is not a sewer backup. It is overflow from a plumbing system. It is not excluded at all.
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    mcgrawreed
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    01/05/2013 9:54 AM
    I was referring to the HO 04-95 endorsement that covers sewer backup. The endorsement usually has a limit ($5,000) and a separate deductible. The question speaks more to decision making and judgement for providing the insured the benefit of the doubt. I believe the prior cleanup should be covered based on the rationale that the insured was attempting to address the cause of loss but didn't realize exactly what the cause was or the extent. Is the DOL the sole starting point and nothing prior should be considered? In this case I think not - the insured was acting to prevent further loss and I believe coverage of both cleanups would be a good faith action.
    Steve McGraw Professional Adjuster
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    Medulus
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    01/05/2013 10:55 AM
    The endorsement I am familiar with that provides sewer backup coverage is the HO2385 (which provides $5000 coverage with a $250 deductible), but it doesn't come into play at all unless the sewer backup is beyond the insured's property. This is backup or overflow from a plumbing system and does not have a special limit or special deductible. This is a single cause of loss, a single occurrence, a single claim for the entire loss on both dates. The date of loss is the date of first discovery. There are some other coverage considerations involving an event that occurs for more than 14 days, which this did not. The carrier is on shaky ground in a denial of any part of this claim, and yes, it is either ignorance on the part of the adjuster that led to denial (giving the adjuster the benefit of the doubt) or it is intentional bad faith (at worst), which is how not paying a couple hundred dollars or even a couple thousand can become a multi-milliion dollar bad faith suit. Hence the carrier is straining at a gnat and swallowing a camel.
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    Leland
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    01/06/2013 3:19 AM
    I agree with Steve Ebner, this is not a "backup". There have been many previous discussions on CADO about what is and is not a backup. Generally, a backup is sewage water flowing the wrong direction from another property. When there is a blockage in the line and water from the insured's property cannot escape down the drain, and instead overflows the toilet bowl (for example) that is not a backup, at least not a "backup" as defined in the insurance world.

    Most adjusters know that many policies will not pay for rain water coming into the interior unless there is FIRST a "wind created opening" which allows the water inside. The coverage rule is that you first have a covered loss and then second you can have coverage for the ensuing damage. That particular scenario is often described in the policy.

    But don't make the mistake of applying that same logic to other causes of loss.

    Just because the cost to repair a deteriorated sewer line might be excluded from coverage doesn't mean the ensuing damage from the sewage is also excluded.

    Another example:

    Just because the repair to the copper pipe slab leak isn't covered, doesn't mean the ensuing damage to the drywall is also excluded.

    In fact, many policies go into exactly that detail: for water leaks, the leak is not covered but the ensuing damage is. That's why it is so common on slab leaks for the carrier to say they aren't going to pay for the $40.00 to sweat a new nipple on the pipe but they will pay for everything else. I have been involved in hundreds of slab leak claims, both as an adjuster and on the contractor side, and no matter what carrier if they agree to pay at all they want to subtract the cost of the pipe leak repair but they pay the "ensuing damage".

    So please don't think that when the cause isn't covered the ensuing damage is also always denied. Sometimes yes, sometimes no.

    Another issue in this sewer water situation is the question of what is damage.

    Many policies require "direct physical damage"....to "covered property"...."from a covered peril" (I am paraphrasing)

    What kinds of things DON'T qualify?

    1) loss of market value due to the murder that occurred in the home
    2) loss of seafood when power went out to the neighborhood
    3) some smoke that drifted in one window and out the other, and didn't get stuck on the wall or anything else.
    4) a slab leak that sent water into the dirt below but did not damage any tile or drywall or anything else.

    Number 4 is a typical denial - unless there is some "ensuing damage" the claim would be denied.

    Smoke is another very tricky issue. In my opinion sometimes smoke is damage, and sometimes it is not.

    I haven't found any case law on the issue but here's the questions I would ask:

    1) did the peril cause some sort of alteration of the covered property?
    2) is it a change that would be permanent if someone didn't fix it?
    3) Is the fix something simple and ordinary, maybe something that is done everyday anyway, like wiping with a sponge?
    4) if it is something ordinary like wiping, is it a big area or a small one?
    5) does the problem require a professional?

    Using these questions I think smoke that discolors paint, leaves an odor, causes health problems, covers the walls and ceilings, and requires hours of wiping would be "direct physical damage". Milk spilled on a granite countertop, however, would not be "damage". Lots of situations fall somewhere in between.

    There is no hard an fast rule that I know of. Each claim has to be "adjusted". Sometimes smoke is damage, and sometimes it is not. Sometimes spilled milk is damage, sometimes not.

    So what about the sewage on the floor?

    Did it discolor the grout? Did it require a lot of time/equipment/professional expertise to remove?

    I have to apologize for my long explanation, but I don't know the answer. Only the adjuster that saw it and their carrier can really make that decision.

    If they decide the first sewage spill wasn't "damage" they can choose not to pay for it.

    But I agree with Steve Ebner- if they are paying for the second loss it makes very little sense not to pay for the first one. They might make a precise analysis of the policy but for a small amount of money why split hairs and trigger unnecessary disputes which end up costing more than any money that was saved.
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    K ung Fu tzu
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    01/06/2013 6:52 AM
    Agree, this is not a 'back-up' at all. The toilet overflowed. It's covered.
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    Medulus
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    01/06/2013 7:54 AM
    Finally.

    Thanks Kung Fu and Leland. I thought I was talking to a wall and was about to throw in the towel on this discussion because nobody was getting the point. It's apparently easy to get confused when we specialize in catastrophes where sewer backup is common. For those who work daily claims, however, toilet overflow is much more common than sewer backup. To make it more confusing, an insured will often refer to the event as a "flood". It is not, however, a "flood" as defined in any insurance policy. And, though it is damage caused by water, it is also not "water damage" as defined in most insurance policies.

    In addition to the considerations Leland mentioned there are also concerns about whether the overflow of water is clear water, "grey water", or "black water".
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    PSR
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    01/06/2013 8:14 PM
    The damage is covered, as has been correctly pointed out, it's straight over flow.

    No coverage for the plumber, except for the migiation work. Nothing for the snaking or any repair to the pipe.
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    pondman
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    01/07/2013 10:36 AM
    Glad to see when I posted a "quick - two word" incorrect answer it opened the doors for professional answers. Everyone needs to remember 3 things.

    1. Read the policy
    2. then read the policy
    3. then re-read the policy
    Give them what they want, when they want it, and how they want it !
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    mcgrawreed
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    01/07/2013 5:35 PM
    Aw, don't worry about it, Pondman. Fella who bats .300 in the Big Show is sought after - even though he's only successful three times out of ten.
    Steve McGraw Professional Adjuster
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    pondman
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    01/08/2013 6:32 PM
    Deputy Fyfe,

    Steve.......You didn't catch the "dryness" in my post.....It was done to get the masses goin! That is why it was only two words. Denied - excluded

    Give them what they want, when they want it, and how they want it !
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    Atfulldraw
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    01/09/2013 1:43 AM
    dryness??

    I thought this was a flood claim.
    Rod
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    pondman
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    01/09/2013 10:38 AM
    Thanks Rod.....I laughed so hard I think I peeed on myself......so there you go....back to the flood claim!!
    Give them what they want, when they want it, and how they want it !
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