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Last Post 01/20/2010 7:03 PM by  Linda
The Big Soaker Hurricane
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Medulus
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08/05/2009 2:16 PM

     

    So…..Hurricane Whatsis has hit and here’s your commercial assignment! Hurricane Whatsis was a Category One big soaker with minimal wind, but 27” of rain falling in a 48 hour period.
     
     
    Your insured is a condo association in Florida. You know that the Florida condo law makes the Association’s policy responsible for “the drywall out”. The units on the ground floor were previously adjusted and their claims paid, but you have been called back out for a supplement on a unit on the fifth floor. It has not been previously inspected or adjusted. This is a monoline property policy. You look first at the policy and note that the following forms are present (and no others):
     
    CP DS 00 10 00 Commercial Property Coverage Part Declarations showing a five story building insured for $38,000,000 on the Building, and 500,000 on BPP with a $5,000 deductible. The loss is within the policy period.
    IL 00 17 11 98 Common Policy Conditions
    CP 00 90 07 88 Commercial Policy Conditions
    CP 00 17 04 02 Condo Association Coverage Form (which you note is very similar to CP 00 10 04 02 Building and Personal Property Coverage Form)
    CP 10 30 04 02 Causes of Loss – Special Form
    CP 10 65 10 00 Flood Coverage Endorsement
    CP 10 54 06 95 Wind and Hail Exclusion Endorsement
    A manuscript Property Enhancement Endorsement which, among other things, provides for elimination of exclusion 1.g.(3) of form CP 10 30 04 02.
     
    Unfortunately, because of copyright, I cannot print those forms here.
     
    The unit owner has no insurance.
     
    Off you go to inspect the loss in the fifth floor unit. As you enter the first floor you notice an 8” water line. But you are not here to handle the first floor damage, so you take the stairs (The elevator equipment was flooded) up to the fifth floor. The fifth floor  damage is limited to one unit. You observe the following damage:
     
    Water Remediation and Dry Out:  $2,750
    Drywall Damage: $1,650
    Insulation Damage outside wall and Ceiling: $750
    Paint: $800
    Remove, Reinstall, Refinish Base Molding: $176
    Hardwood Flooring Replacement: $3,700
    Lauan: $500
    Remove and Reset Contents: $80
    Mold Testing   $275
    Mold Remediation: $18,000
    The unit owner's motel bill:  $2,226
     
     
    In order to determine the cause of this loss, you go up to the flat built up roof and find a roof drain immediately over the damaged unit. You shine a flashlight down the roof drain and note that it is cluttered with debris. A small area of the roof has been repaired around the roof drain since the storm. You are handed a roof repair invoice for $1,200.00 and told these repairs were necessary because water got under the roof membrane in this area, and it had to be opened and dried out.  There is no indication of wind damage of any kind.
     
    So…..what items are covered and why? How much would you pay on this claim under the association policy?
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    dcmarlin
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    08/06/2009 12:59 AM
    Without putting my brain into overdrive and/or actually looking at the policy forms, my initial thought is there is no coverage for this loss due to the limitation requiring the building first sustain damage by a covered cause of loss from where the water entered.

    I would want to read the entire policy as well as the enhancement prior to making any coverage call.
    Gimme a bottle of anything and a glazed donut ... to go! (DLR)
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    Medulus
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    08/06/2009 9:51 AM
    That's one of the issues. The CP 1030 04 02 contains a limitation that interior water damage due to rain and some other types of damage are covered only when damage is sustained to the walls or roof due to a covered cause of loss. So, the questions arise 1. Is there a covered cause of loss, and 2. Did the covered cause of loss cause damage to the walls or roof of the building through which the water entered?
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    RJortberg
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    08/06/2009 9:11 PM

     

    Steve:
     
    This is a tricky one.
     
    The CP 10 30 04 02 1.g.3 - Cause of Loss - Special Form - Exclusion includes the following: “Water that backs up or overflows from a sewer, drain or sump.”    This states that a water back up is not a covered cause of loss. 
     
    But, this exclusion is eliminated by the referenced manuscript property enhancement endorsement in your comment.    So therefore, this could be a covered cause of loss (certainly if this were a below grade backup). 
     
    But if the water backs up on the roof, and the roof is intact, the water goes down scuppers, it blows off the roof, it evaporates, it goes down other drains, etc. It basically sits there until it dissipates. The back-up does not necessarily find its way into the structure as it would if it were a back up generated inside a structure (let’s say in the basement). 
     
    So one major question is how did the water get into the unit? We assume the water ponded up on the roof because of the backed up drain, and it is possible that the roof failed somewhere, leading to the leak. The broader question is: is the ponded water on the roof “surface water” (CP 10 30 04 02 1.g. 1) because surface water is excluded irrespective of 1.g.3 and the enhancement endorsement.  This is just like water next to a building that seeps into the structure. 
     
    In Crocker v. American National General Insurance Co., --- SW3d ---, 2007 WL 29708 (Tex.App.-Dallas January 5, 2007), the plaintiff appealed denial of coverage about water damage from “surface” water that ponded up on their adjoining but above grade patio. The plaintiff felt that surface water has to be on the ground to be excluded as a source of a covered loss. 
     
    The court however accepted a definition wherein “water that falls on the surface it finds is defined as surface water, unless it encounters some kind of human-created channel or trench that transforms its force.” Therefore, I believe that water on a roof would be considered surface water since the water originally fell on the roof. This surface water is therefore an excluded cause of loss. It does not matter that the drain backed up and created the surface water. What matters is that the surface water found its way into the unit and created the non-covered damage. 
     
     
    BUT, for the sake of an exercise, if one were to assume that this is not surface water, and the backed up drain directly caused the damage and is a covered loss, I’d say the following:
     
    There is no evidence of wind damage- therefore CP 10 54 06 95 (wind driven rain exclusion) does not apply. 
     
    The mold is tricky:   Mold is an additional coverage limited to $15,000 (Section E.3) provided the cause of loss is a “Specified Cause of Loss” … and provided "all reasonable means were used to save and preserve the property from further damage... after the occurrence…”   
     
    The definition of Specified Causes of Loss includes: …. water damage.    So assuming that some reasonable means were used to mitigate, mold would be covered up to $15,000.   If there was no intent to eliminate or reduce the possibility of mold or if the insured’s action actively created the mold (closed windows, no A/C, etc.), then this may be excluded.  I’d look hard into this issue to see if basic good faith efforts had been made by the insured to mitigate this potential damage.   But this is probably a policy question of the carrier, and I’d ask for a manager’s opinion on this, again assuming this roof back up is a covered loss, which it I don’t think it is. 
     
    The $2,226 ALE is also a bit questionable in my mind. First question – is the ALE due to a bona fide lack of habitability of the structure or was it more convenient for the insured to live in a hotel because of dust, possible area wide power outage, etc.?
     
    This relates to a question of habitability due to 1) mold, 2) the damage to the structure or 3) the impact of the repairs on the habitability of the structure.  Bottom line in my opinion, if the mold is not covered, and the reason for the ALE is the mold, then the ALE is not covered. 
     
    If the structure was actually uninhabitable because of the hypothetical covered loss, then the ALE would be covered. This is a question since the structure repairs are minimal for a $2,276 hotel bill. 
     
    If the ALE was for the time of the repairs, and the structure was still habitable when being repaired (i.e. 1 room in a 6 room structure), then the ALE would not be covered.  They may stay away for a few days for sanding and for the Glitza or floor finishing to dry (and this assumes this is the initial floor covering and not a replacement floor covering), but $2,276 in hotel bills is for more than a couple of days.    
     
    Assuming the mold is covered and assuming the ALE is covered, I’d go with this estimate: 
     
    Water remediation         $2,750
    Drywall damage             $1,650
    Insulation                      $750
    Paint                             $0       (unit owners cost)
    R/R Molding                  $176       
    Flooring                        $3,700 (assumed to be original flooring, $0 if not original)
    Lauan (?)                       $500
    R/R Contents                $80
    Mold testing                  $275
    Mold remediation          $15,000 (policy limit- actual cost of $18,000
    Motel bill                       $2,276
    Roof  invoice                 $1,200
    Total                             $25,607
     
    less deductible              $5,000
     
    Total                             $20,607            
     
    Again, I think it is a non-covered event based on CP 10 30 04 02 1.g.1 - Cause of Loss Surface Water. 
     
    Thoughts?
     
    Rich J. 
     

     

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    Medulus
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    08/07/2009 10:16 AM

    Rich,

    I want you on my team when we're discussing coverage. You go the extra mile. You even quoted legal precedent, which is impressive.  However, I have a couple questions.

    1. "Water Damage" is a "specified cause of loss". But how is "water damage" defined as a "specified cause of loss"?  Look at the end of CP 10 30 04 02 under definitions.
    2. Does the condo association have an insurable interest in the unit owner's A.L.E., and
    3. Does the dec page show any coverage for time element exposures (assuming I gave you all the policy info you need in my set up)?
    4. Is there any coverage for surface water under any of the policy forms listed above that might give coverage for surface water excluded under the CP 10 30 04 02?
    5. To what elements of the loss does a $15,000 mold limit apply? Is it on a per occurrence or per annum basis (This second question is simply out of curiosity and has nothing to do with this claim)?

    6.  Does the limitation on interior damage due to rain et. al. that Dave Marlin referenced above apply to this loss?  Why or why not?
    7. What elements are paid under the Florida "drywall out" condo statute? (I think your answer applies a statute similar to Maryland or Virginia where only improvements and betterments added after the purchase of the unit are the unit owner's responsibility.)  Maybe one of our Florida Adjusters can weigh in on how the Florida law applies.  I admit that I have more experience with Florida condo law than that of any other state, so I know what it allows.  If this were say, Utah, I would have to download a copy of the law and read it.

    BTW, for those who have only handled exterion hail claims and the like, lauan is an inderlayment board placed prior to placing vinyl or wood floor coverings to level the surface.

     

    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    RJortberg
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    08/07/2009 3:07 PM

    Steve: The Socratic method sure is a great teaching tool… really works in this case. Thanks for the clarifying questions:

    1.) "Water Damage" is a "specified cause of loss". But how is "water damage" defined as a "specified cause of loss"? Look at the end of CP 10 30 04 02 under definitions.

    Interesting…- last paragraph of the entire form CP 10 30 04 02…..
    “Water damage means accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of a plumbing, heating, air conditioning or other system or appliance (other than a sump system including its related equipment and parts), that is located on the described premises and contains water or steam. “

    So this water damage is not a cause of loss since it did not come from - let’s say - a broken pipe or a water heater. In short, a roof leak is not covered since it is not a listed “specified cause of loss”. Even though this damage may be from surface water and excluded by CP 10 30 04 02 B.1.g.1, the limits to the mechanisms (“Specified Causes of Loss”) for the water damage are key. It really does not matter where the water damage came from; it matters where it did not come from.

    2) Does the condo association have an insurable interest in the unit owner's A.L.E.?

    Good question that gets to the heart of the matter. No. The unit owner is not party to this contract. I wonder if the liability policy could cover this due to vicarious liability much like damage to an offsite bldg.

    3) Does the dec page show any coverage for time element exposures (assuming I gave you all the policy info you need in my set up)?

    The dec page states that the loss occurred during the policy period, but I do not see anything about an ongoing event (something other than a sudden and accidental cause of loss). The CP 10 65 10 00 Flood coverage endorsement (which I could not find) could cover seepage and surface water.

    4) Is there any coverage for surface water under any of the policy forms listed above that might give coverage for surface water excluded under the CP 10 30 04 02?

    The CP 10 65 10 00 Flood coverage endorsement ...
    I was going back and forth on this. For a flood to be covered, there has to be more than 2 acres of water and more than one property damaged. So, assuming both conditions exist, then the first floor damage is clearly covered. I am not experienced enough to know if the surface water on the flat roof is also covered by the flood policy, and I could not find a policy on the net to look at. But this was one side of it that I thought about after writing up the summary last night.

    The surface water on the roof would be covered if the flood waters do not have to be contiguous to the damage. Normally, that condition talks about run off and such away from the 2 acres that determine the flood, but I would venture that it could also mean a non-contiguous roof above the flood waters and the 8" water line.

    I also was wondering if there has to be 2+ acres of water on the roof or roofs (probably not) or does it have to be that two buildings have similar roof damage (probably not also) to qualify this part of the building for a flood.

    So on balance, I think this would be a good one for a question to a person above my pay grade. With greater reflection on your question, I think that the surface water on the roof could be covered by CP 10 54 06 95, but I could not find anything certain about this.

    5. To what elements of the loss does a $15,000 mold limit apply? Is it on a per occurrence or per annum basis?

    The scheduled properties are included in this limited coverage, and this an annual limit. No free ride on this one, so first in line gets the bacon.
    As long as the mold is on the association owned items, coverage would be available so inside the drywall - demising wall structures - would be covered, but mold on the interior wall paint (owners side) would not be covered.   


    6. What elements are paid under the Florida "drywall out" condo statute?

    Here’s what one company states:
    Dwelling - Our policy provides coverage for the costs to repair damages to your condominium unit that, by law, are your responsibility and not the responsibility of the condominium association. Examples are damages to flooring, wall and ceiling coverings, window treatments and fixtures such as cabinets, lighting, counter tops and built-in appliances contained within your condominium unit. http://www.securityfirstflorida.com...urance.asp

    So these elements are the responsibility of the unit owner, regardless of betterment, and the hardwood floor replacement is off the list with the paint.

    I have read about a “Law of the Second Time”, and it basically says that it takes about ½ to 1/3 as much time to do something the second time as it does the first. This is very similar to policy questions like this, and it really shows how much more efficient an experienced adjuster is relative to one newer in the field. A good exercise to cut to the heart of the matter.
















     

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    Ray Hall
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    08/07/2009 9:53 PM
    I will give my opinion next week when I can really get into it.
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    Medulus
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    08/10/2009 10:06 AM

    A couple of clarifications, Rich. I'm not giving my answers quite yet. But I like your thought process.  To tell you the truth, some of my answers are going to be in the "grey" area on this one as well.

    In # 3 above, when I used the term "time element exposures", that refers collectively to certain categories of indirect damage, namely A.L.E. or loss of rents on an HO or DP policy, or loss of business income or loss of rents under a commercial policy. The most typical Commercial property form that is used to add this coverage is the CP 00 30. Since the CP 00 10 states "we will pay for direct physical loss or damage", it requires a separate form to cover indirect loss such as "time element exposures" such as those already listed.

    In # 5 above, what I was asking is whether testing is included in the $15,000 or is allowable on top of the $15,000.

    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    Ray Hall
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    08/10/2009 6:22 PM

     

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    Leland
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    08/10/2009 8:37 PM
    Mr. Jortberg- if there is coverage and using your numbers of $18,000 mold loss/15,000 limit, couldn't we absorb $3000 of the deductible? I know you weren't showing a full SOL but I thought it's worth mentioning.

    Another issue which often comes up is to review what portion of the mold remediation, if any, can be paid under the building line of coverage.

    For example, if the mold remediation estimate of $18,000.00 includes $4000.00 of demolition/removal/disposal that would have been needed and covered anyway (due to water damage?) it might be correct to show the mold portion of the loss as 14,000.00 and put the other $4000.00 under building coverage. Some insurance carriers have instructed me to break apart mold remediation invoices this way, in order to be as fair as possible to the insured. In this example, however, if NOT breaking it out gets the deductible absorbed, that might be the good faith way to handle it (better settlement to the insured).

    Without spending a lot of time on this, and without having the policy forms, I don't imagine that the condo owners flooring, mold remediation and ale would be covered by the building owners policy anyway.

    But maybe part of the mold remediation would be covered under the building policy, and part would not be covered. Getting the mold off of the studs might be covered under building but maybe not the removal of mold from the luan underlayment.

    What if the flooring wasn't covered, but it had to be removed to gain access to dry out or inspect or remove mold from the manufactured joists underneath? Would that make a difference?

    To paint with a broad brush, roof leaks that don't involve wind or other covered perils (roof leaks from failing/deteriorated roofing) are usually not covered. (An exception would be for a leaking roof during a hurricane and covered under a BOP policy- no wind created opening needed for coverage- just the existence of a hurricane is enough.)

    Does the fact that this water intrusion happened during a hurricane make any difference on coverage (like a BOP)?

    Tenants and condo owners often receive nothing from their own insurance when water comes in from a failed roof that their landlord failed to maintain. Insurance is generally not designed to cover losses caused by failure to maintain the roof.
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    Ray Hall
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    08/10/2009 9:01 PM

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    Go to proximate cause of water damage. Seepage around roof drain. Contributing factors. Ponding was probable caused by clogged drain pipe. All of the CP forms have the Cause of Loss Forms; none of the perils named includes this proximate cause. I.e.: fire, lightning etc. Windstorm is xxx out on this CP and this peril is in a wind pool. This was also turned down by the wind carrier as no opening on the roof or wall from wind damage was present.

    Flooding can only start from ground level and rise up. And the water mark was 8 inches not 50 feet. 

    Now this only leaves the CP 30, “risk of loss”. However the risk of loss does not cover any water leaks, unless a hostile opening is made. Any reference to water damage is in the 14 cause of loss named perils in the CP 20 and a clogged up roof drain line by “debris” is not one of the perils. The “risk of loss” (open peril) does not apply to “water” claims unless they are one of the 14 named in the CP-20, but is not a part of this instant policy as the CP-30 is special form. The CP’s have the 10. 20 and 30. You must first have a CP 10 or 20 before you can add the 30, but not both. The other forms in this example are basic to the entire CP except the 165 which is the flood cover. 

    The whole loss is excluded as it’s a non specific water loss and not named as one of the perils in CP 10 namely   1. Fire, etc, etc

                                                    2. Lightning

                                                    3. Explosion

                                                    4. Windstorm or Hail

                                                    5. Smoke

                                                    6. Aircraft or Vehicles

                                                    7. Riot & Civil Commotion

                                                    8. Vandalism

                                                    9. Sprinkler Leakage

                                                    10. Sinkhole Collapse

                                                    11. Volcanic Action

     

    The CP 10-30 is a broad commercial policy, but it does not cover leakers or wind driven rain. None of this damage is covered under the master policy or the Florida Unit owner laws on condo,s

     

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    Leland
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    08/10/2009 9:34 PM
    regarding the testing for mold, if the mold remediation is covered then the testing should be covered as well as it is a reasonable (and inexpensive) step to make sure the unit is returned to the pre loss condition. Refusing to cover the testing could end up being very costly to the carrier if the testing wasn't done and mold came back later. Since the mold remediation loss is over the deductible, most carriers I know would pay the mold remediation as a claim related expense and keep it out of the SOL.

    Another issue is that repairs were completed prior to inspection, which may be a failure to follow the duties listed in the policy.

    "A small area of the roof has been repaired around the roof drain since the storm. You are handed a roof repair invoice for $1,200.00 and told these repairs were necessary because water got under the roof membrane in this area, and it had to be opened and dried out."

    Was the roof opened, dried out, and then repaired, BEFORE the claim was made? Why? Was it an emergency repair? Were photos taken? Was there a construction defect in the way the drain was tied in to the membrane? What do the other unrepaired drains look like? When was the roof last worked on? By who? These are some subrogation questions I would ask.

    "The units on the ground floor were previously adjusted and their claims paid, but you have been called back out for a supplement on a unit on the fifth floor. It has not been previously inspected or adjusted"

    Why not? Was the unit vacant? Was there a failure to mitigate the loss? Was it reported late?

    Another odd detail is that the roof has been repaired but the drain is still clogged! What professional roofer would repair the roof but leave the drain clogged? If this was a daily claim I would imagine the carrier would want to have a professional roof inspection done, and I would ask them. In a Cat claim (especially with coverage) maybe not.

    The debris in the drain is also potential subro evidence. I once had a claim with a clogged underground drain- the clog was from waste material cut from roofing tiles being installed on a neighboring property- the debris can be subro evidence. If the debris is a scrap piece of CATV wire (left loose on the roof by the installer) there is good subro potential.

    Also if the debris is CATV wire from an installation done 18 months earlier it may trigger another possible reason for denial of the claim- failure to maintain the roof. Larger buildings often have strict procedures for getting on the roof, and written permission from the HOA and/or building management is required. A security guard might accompany any one going on the roof. Written records are kept, precisely because of the problems that can result from workers drilling holes, leaving debris etc. If I saw some man made debris in the drain I would photograph it carefully and either recover it or verify that a roof inspector would.

    If you think I'm off base I once recovered some tools from a roof that were critical evidence in a $2,500,000.00 subrogation claim.

    Plus you won't always find that much leaf debris on top of a 5 story roof when there is a " Category One big soaker with minimal wind".

    Just my two cents, I would try to answer the specific policy questions if I had the forms.
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    Leland
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    08/10/2009 9:38 PM
    Without seeing the forms I think Ray is right. But I would still document anything related to potential subro and ask a few questions about why and who just to document my file in case the coverage decision changed later on.
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    Leland
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    08/10/2009 9:45 PM
    Another question I can't help but ask-

    The other claims were already paid.

    What did the previous adjusters (who might have gotten there before repairs) think the cause of loss was?
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    RJortberg
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    08/11/2009 2:11 AM

    Gents:

    A few comments- Steve- about the CP 00 30 form (your point #3): I think Ray and Leland also agree this is not a covered loss, but even if it were, BI and Extra Expense do not appear to be relevant here. If this were an apartment building, I’d think about coverage for lost rents , but since it is an HOA, no BI to start with, and therefore no extra expense is available.

    The mold testing (CP 10 30 04 02): If this were a covered loss, which I don’t think it is, the “cost of testing performed after removal, repair, replacement or restoration of the damage property is completed… “ is payable as part of the additional coverage for mold. So it seems that the policy is unclear about coverage for initial testing (even if the entire cost is under the $15K ded.) It is clear that testing after the above condition is mitigated is payable, and it is inside the $15K, not on top. I think Leland’s comments show great insight about risk management by the carriers to treat this as a claims expense and not on the SOL. Bottom line, I think the exploration for mold does not appear to be a covered expense, but mitigation and subsequent testing is covered.

    About the luan, from the little I could read on this, I do not see that the law is clear about what part of the wood floor is unit owner owned vs. HOA owned. In other words, the luan could go both ways- be owned by the HOA since it is a substructure to the floor, or owned by the unit owner since it is part of the flooring. I’d like some clarification on this.

    About the flood coverage: Thanks Ray for the clarification…and the concise analysis / summary. I sat through a one day NFIP class earlier this year, and not having done flood claims, I only got some of the rudimentary points. I though t I heard something about roofs, and I know I heard about offsite flooding, but the sequential damage aspect of flooding makes a lot of sense. How can you have flooding on the roof if the water line is only at the bottom of the first story?

    About the drain, the debris and the repair- Leland’s questions are really informative as to where the claim could be headed. I was thinking about subrogation issues initially to see if the roof repairs (reported to be post storm but could they have been prior?) were the proximate cause. Also, the comments about absorbing the deductble and aportioning among other coverages / limits is important and shows good faith.

    About the prior claims having been paid--- I’d venture that those were probably flood related, but they probably don’t have any bearing about the 5th floor damage, unless a central HVAC system next to the elevator went out and the mold came as a result. But that would not only be one unit on the 5th floor.  But, like the roof leak in general, I’d wonder if the unit owner has a liability claim against the HOA. Is there a way the unit owner would be made whole - they do not have a condo policy, though this is now required by FL law. 

    Good exercise, I’d like to hear what the final verdict is, but it seems that there are some central tendencies here already.


     

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    Medulus
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    08/11/2009 10:12 AM

    I'm not going to give my answer yet, but I don't fully agree or disagree with any of you.  Of course, there are several grey areas in this scenario, and I am not going to claim I have the definitive answer either.

    Leland gets kudos for noting that the deductible can be absorbed to extend a special limits coverage. I actually had a file earlier this year that reopened for consideration of mold bills. This file had been closed by my predecessor over a year earlier (and I almost never find a mistake in her files). She had already paid the mold limits and explained this to the insured in writing before closing the file. But she had forgotten to absorb the deductible.  Since the excess mold expense was well in excess of the deductible, we paid an amount equal to the deductible.  By the way, I had to walk my boss through this and explain why we owed additonal money.  He is one of the best casualty adjusters and litigation specialists I have encountered, but he leaves the property claims to me. 

    Rich, one of the reasons I included lauan (also spelled luan or lavan) in the scenario is exactly what you point out. The floor covering is part of the unit owner responsibility under Florida condo law. But whose responsibility is the lauan? It is not technically a subflooring, but an underlayment. But it can function as a subflooring. That makes it one of the grey areas in this scenario. As such, if I am covering the loss, I would include it as association property. It is serving the same function with regard to the floor as the drywall is serving with regard to the wall -- as a surface on which to apply the covering.  Especially with an unisured unit owner, it is important to give the insured the benefit of the doubt as to what we owe.

    Ray, I do agree with you that this is not a flood loss. I don't think that would fly in court. The definiton of "Flood" in the CP 10 65 10 00 is: "Flood, meaning a general and temporary condition of partial or complete inundation of normally dry land areas due to:
    1. The overflow of inland or tidal waters;
    2. The unusual or rapid accumulation or runoff of surfaces waters from any source;
    3. Mudslides or mudflows which are caused by flooding as defined in C.2. above. For the purpose of this Covered Cause of Loss, a mudslide or mudflow involves a river of liquid and flowing mud on the surface of normally dry land areas as when earth is carried by a current of water and deposited along the path of the current."

    Where I do not believe this fits the description is in that it must be an inundation of normally dry LAND areas.  I don't think a roof qualifies.  Nor is it overflow of inland or tidal water, runoff from anywhere else, or Mudslide or Mudflow. 


    To expand on Ray's discussion about the CP 10 10 (Basic Causes of Loss), CP 10 20 (Broad Form Causes of Loss), and CP 10 30 (Special Form Causes of Loss): The first two of these puts the burden of proof on the insured to prove that they have a loss caused by one of the causes of loss insured against. The Special Form (CP 10 30) shifts the burden of proof to the insurer. Basically, if it is "direct physical damage to covered property" (insuring agreement of CP 00 10), and no policy conditions are violated, then the CP 10 30 04 02 states:

    "When Special is shown in the Declarations, Covered Causes of Loss means Risks Of Direct Physical Loss unless the loss is:
    1. Excluded in Section B., Exclusions; or
    2. Limited in Section C., Limitations;"

    The burden of proof shifts to the insurer to show that it is either Excluded in Section B or Limited in Section C. Backup through a sewer or drain is excluded under Section B.(g.)3. But this exclusion is specifically deleted under the Property Enhancement Endorsement. So, what is the proximate cause of this loss? Is it rain, or is it backup through a sewer or drain? Or is it a windstorm?  Or is it faulty maintenance of the roof?  Or is it something else?  Is a roof drain what was intended by the drafters of the exclusion and/or exception concerning sewers and drains?  We have the burden of proof to show how it is excluded (if it is excluded) since this policy has the CP 10 30 attached.

    I'm not going to give my answers yet.  I'm waiting for some of the other coverage gurus to jump in.  I'd also like to see some other up and coming adjusters take a stab at it.  I want people like Rich, Leland, and Ray in the coverage conference with me.  I also hope that folks like Steve Beaumont will weigh in.

    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    Ray Hall
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    08/11/2009 11:14 AM
    The CP is a policy that is used on a lot of commercial losses. What you have to rermember is the coverage is listed on the first page dec. sheet and the real coverage meat on the CP numbers like CP 10 10, CP 10 20 and CP 10 30. The other forms are part of the policy, but are general conditions to all fire policys. The 10 and the 20 are named peril and the 20 has 3 more perils named than the 10. Number 12. Falling objects 13. Weight of snow, Ice or sleet. 14 water damage ( the sudden, accidental language) However under peril 14 some very relevant language such as: However, water damage does not include: (1) Discharge or leakage from:(a) An automatic sprinkler system;(b) A sump or related equipment and parts, including overflow due to pump failure or excessive volume of water, or (c) Roof drains, gutters, downspouts, or similar fixtures or equipment. and then the freezing language.

    This risk did not have the CP 10 20 04 02. It had the CP 00 10 04 02 and more important the CP 10 30 04 02 . This is the "risk of loss" coverage. This coverage has the hostile opening language and the failure to maintain drains.

    these type losses need a very careful examination of all conditions before a coverage decision is made. What made this question very hard to reserch and come to my decision is the CP 10 seems to give coverage and theCP 20 is very plain that the coverage is taken away. The xxx wind coverage takes out the windstorm element and the evidence of membrane repair around the roof drain is a maintance question.
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    Ray Hall
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    08/11/2009 11:16 AM
    A side note. The BOP has broader roof coverage like " Leaks" and wind driven rain.
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    Leland
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    08/11/2009 12:08 PM
    If the subfloor was good enough for carpet, but Luan needed to be added in order to place linoleum, then I would consider the luan as part of the linoleum install. Did all the units have linoleum on the day they were built?

    Also there can be problems with flooring when there is more than one layer from previous remodels. If the Luan was put in to raise the floor material in one room to be even with another, then I would consider it as part of the flooring and not the building structure.

    Then again, as Steve says, it might be appropriate to give it to the association if there is some ambiguity.
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    Leland
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    08/11/2009 12:23 PM

    "I’d wonder if the unit owner has a liability claim against the HOA"

    This is a tricky issue- you might be adjusting the 1st party claim but that same carrier you represent also carries the liability coverage. This is an additional reason why looking at subro potential can be a good idea.

    Let me give you an example.

    I had a 2 story building fire with a lot of smoke throughout. The cause was might have been a tenant smoking in bed. The smoked material may have been something other than cigarettes (very common causation in Los Angeles motels at 2 Am)

    I was handling the building damage, but I noted on the dec sheet that the carrier had liability exposure. Since the roommate of the tenant was taken to the hospital for smoke inhalation I called the carrier ans asked if they wanted a cause and origin investigation. They really didn't need one for the building loss, but they wanted it for the liability exposure due to someone being injured.

    So yes, the condo owner may have a claim against the association. Especially if they have no insurance of their own. So if you see any evidence that the associations unlicensed roofer caused the loss by leaving roof scraps in the drain it would be a good idea to notify your carrier especially if they also have the liability exposure. Because maybe the loss isn't covered on the first party claim but it would be on the liability claim.  

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