So…..what items are covered and why? How much would you pay on this claim under the association policy?
Let me introduce my thinking on the solution to this coverage question by quoting Robert Frost:
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I --
I took the one less traveled by,
And that has made all the difference
At several points during the analysis of coverage on this claim we have the opportunity to take either of two roads in this grey wood.
So….here’s my answer:
The AICPCU materials suggest that we follow a methodology called D.I.C.E. in determining coverage. D.I.C.E. stands for Declarations, Insuring Agreement, Conditions, Exclusions. So I start with the Declarations. They tell me I have coverage for building and contents, but none for business interruption, loss of rents, extra expense, or any other time element loss. There also is no liability coverage. This tells me that even if my insured somehow owed the motel bill of the unit owner there is no coverage. The motel bill is out. The declarations page further tells me the deductible is $5,000 and that the loss is within the policy period. As far as the limits, if I suspected the limit was breached by the damage on the first floor, I would want to check the file for the first floor losses. However, it is unlikely that the limit has been breached. If so, there is a serious co-insurance issue.
On to the insuring agreement found in the CP 00 17 form. It says:
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
So we need to have direct physical loss or damage to Covered Property. Under the Florida condo law and the principals of insurable interest, we can throw out the items that are not covered property, namely the paint, base moldings, and the hardwood floor. The lauan is the first place where two roads diverge in this grey woods. Is it an underlayment? Is it a subfloor? Since it could be considered either, I choose to give the insured the broadest coverage possible and I include it as covered property.
Additionally, it has to be caused by any Covered Cause of Loss. This, of course, requires you to move on to the Causes of Loss Form CP 10 30 which states:
A. Covered Causes Of Loss
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; that follow.
So, covered causes of loss means risks of direct loss unless specifically excluded or limited. Any risk of direct physical loss that is not excluded or limited is covered. I will hold off on consideration of exclusions and limitations for consideration until after we look at the conditions.
There are three places where you find conditions: The IL 00 17, The CP 0090, and the CP 00 17. The conditions of the IL 00 17 are very general policy conditions and don’t concern us with regard to this claim. The CP 00 90 deal more specifically with property insurance, but still has nothing in it that concerns this claim.
One of the conditions of the CP 00 17 could affect this claim. It is:
3. Duties In The Event Of Loss Or Damage
- You must see that the following are done in the event of loss or damage to Covered Property:
(2) Give us prompt notice of the loss or damage. Include a description of the property involved.
(3) As soon as possible, give us a description of how, when and where the loss or damage occurred.
(4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limit of Insurance. However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also, if feasible, set the damaged property aside and in the best possible order for examination.
(6) As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records.
Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records.
The Insured’s Duties after a loss may have been breached, in other words, by repairing the roof before we had an opportunity to inspect it. However, this is offset by the duty of the insured to take reasonable steps to prevent further damage. The roof repairs having been completed, it is now impossible to determine with absolute certainty how water got through the roof. Hiring an engineer will not help because the repairs have altered the roof from it’s condition at the time of loss. But, then again, would any of us want to them not to fix the roof yet? We would have liked to know about this immediately, but at this point we simply have to play the hand we’re dealt. Hopefully, we can obtain a photo pre-repair, or talk to someone who is relatively unbiased who saw the loss area prior to the repairs. In the real world, on a minor roof repair, we are likely to have to take the insured at their word. They told us that water got under the roof membrane and, therefore, they had to repair it. Here again, two roads diverge in this grey woods. I could deny this claim because the area where the loss began has been altered to the point that I cannot fully determine how the loss occurred, thereby prejudicing me. I cannot be fully certain, due to the actions of the insured, whether there was a hole or split in the roof caused by age or neglect or whether the hurricane winds tore up a small area of roof or blew a sharp object across it or whether the roof as poorly constructed in this particular around the drain. But I choose the path that says this is not enough to deny the claim because the burden of proof under a CP 10 30 form is on the carrier rather than the insured.
So, on to the exclusions and limitations. These are the ones that might apply:
1. We will not pay for loss or damage caused directly or indirectly by any of the following.
Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;
(Commentary: This does not describe this loss at all. Water on the roof cannot be construed as surface water. There is a flood endorsement on this policy, but that is a red herring. The fifth floor damage is not the result of flood.)
(3) Water that backs up or overflows from a sewer, drain or sump; or
(Commentary: This exclusion is deleted by the Property Enhancement Endorsement. Since Endorsements are specifically designed to change some part of the policy – to add or subtract some coverage or change some condition – the endorsement always trumps the main policy form. So back up or overflow from a sewer or drain is not excluded.)
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
(Commentary: The seepage exclusion clearly does not apply to water entering through a roof. It refers to water under the surface of the ground.)
h. "Fungus", Wet Rot, Dry Rot And Bacteria Presence, growth, proliferation, spread or any activity of "fungus", wet or dry rot or bacteria.
But if "fungus", wet or dry rot or bacteria results in a "specified cause of loss", we will pay for the loss or damage caused by that "specified cause of loss". This exclusion does not apply:
1. When "fungus", wet or dry rot or bacteria results from fire or lightning; or
2. To the extent that coverage is provided in the Additional Coverage – Limited Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria with respect to loss or damage by a cause of loss other than fire or lightning.
Exclusions B.1.a. through B.1.h. apply whether or not the loss event results in widespread damage or affects a substantial area.
(Commentary: Mold, which is included in the term “fungus”, is excluded with a couple exceptions. We’ll deal with the exceptions a little later. On to more exclusions….)
2. We will not pay for loss or damage caused by or resulting from any of the following:
f. Continuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more.
(Commentary: presumably this did not occur over a period in excess of 14 days and cannot then be considered continuous or repeated seepage or leakage of water. More exclusions…)
3. We will not pay for loss or damage caused by or resulting from any of the following, 3.a. through 3.c. But if an excluded cause of loss that is listed in 3.a. through 3.c. results in a
Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
a. Weather conditions. But this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in Paragraph 1. above to produce the loss or damage.
(Commentary: This might have applied, but for the fact that back up or overflow from a sewer or drain is no longer excluded under paragraph one, so this exclusion does not apply.)
c. Faulty, inadequate or defective:
(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
(3) Materials used in repair, construction, renovation or remodeling; or
(4) Maintenance; of part or all of any property on or off the described premises.
(Commentary: Here is where we wish we had gotten the opportunity to view the roof prior to repairs. It is quite possible that there was some defective workmanship, wear and tear , or other defect involved in the water entering this building from the roof, but we do not know because the insured made repairs before you saw the loss. It is now too late to get an engineer’s opinion. Here again, two roads diverge in this “grey” woods. I understand that the burden of proof is on the carrier to show the exclusion. I don’t believe I can rely on this exclusion. And the exclusion following is from the windstorm exclusion endorsement. )
WINDSTORM OR HAIL
We will not pay for loss or damage:
- Caused directly or indirectly by Windstorm or Hail, regardless of any other cause or event that contributes concurrently or in any sequence to the loss or damage; or 2. Caused by rain, snow, sand or dust, whether driven by wind or not, if that loss or damage would not have occurred but for the Windstorm or Hail.
But if Windstorm or Hail results in a cause of loss other than rain, snow, sand or dust, and that resulting cause of loss is a Covered Cause of Loss, we will pay for the loss or damage caused by such Covered Cause of Loss. For example, if the Windstorm or Hail damages a heating system and fire results, the loss or damage attributable to the fire is covered subject to any other applicable policy provisions.
C. In the Causes of Loss - Special Form, Windstorm or Hail is deleted from the "specified causes of loss".
(Commentary: There is no other evidence of damage due to wind to the building, so should we suppose that the roof was damaged by wind in the small area that has been repaired. That would be a hard sell. This occurred during a windstorm and is certainly caused directly or indirectly by the windstorm. But if there is a resulting cause of loss that is covered such as, in this case, back up or overflow from a sewer or drain, coverage is allowed for that resulting damage. This is my understanding of concurrent causation. Namely, if there is a resulting covered cause of loss it does not extend coverage to the uncovered loss that is separately attributable to the excluded cause of loss. It only allows coverage for loss resulting from the covered cause of loss.
Finally, there is the limitation that some of you found to be the nail in the coffin.)
The following limitations apply to all policy forms and endorsements, unless otherwise stated.
1. We will not pay for loss of or damage to property, as described and limited in this section. In addition, we will not pay for any loss that is a consequence of loss or damage as described and limited in this section.
c. The interior of any building or structure, or to personal property in the building or structure, caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not, unless:
(1) The building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain, snow, sleet, ice, sand or dust enters; or
(Commentary: Here is where we encounter yet another fork in the road in our “grey” woods. In fact this one is a four way intersection and we can diverge at several points. First, note that there is no “hostile opening” language. The word “opening” is nowhere to be found. I believe, if memory serves me right, that an “opening” caused by a covered cause of loss was a requirement in former versions of this form. However, the CP 10 30 04 02 version only requires that the building sustain damage from a Covered (not excluded) Cause of Loss. This is not now the case. Is water getting under the roof membrane damage? Furthermore, the damage to the interior must be from rain, sleet, ice, sand or dust in order for the limitation to apply. This was discussed at length in a couple previous posts. The fork in the road is before us. My opinion is that when the debris was washed into the drain so that water flowing into the drain would overflow, backing up under the roof membrane, that this created an intervening causation that meant that the cause is no longer rain or windstorm, but back up or overflow of a drain. Therefore, I’m taking the road that leads to coverage rather than denial on this one. If you disagree with me on this one, you are in good company. In fact I think I am truly choosing the road less traveled here. This is the part my boss and I went round and round on when we encountered a similar situation on one of our claims. I see this as a claim for damage caused by the backup or overflow of a drain. If this drain were inside the building and backed up during a rainstorm, we would call it back up. I think the same is true when the drain is on the roof. I have actually encountered this sort of situation on cat claims a few times and the carriers have, in each case, decided to cover the losses. There was usually a $5,000 limit or less on backup though. This policy has no such limitation.)
Now, at this point, I am traipsing down the coverage path I chose in this “grey” woods. So far I am covering the loss to covered property. But how about the mold? It’s time to take a look at the additional coverage for mold.
E. Additional Coverage – Limited Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria
1. The coverage described in E.2. and E.6. only applies when the "fungus", wet or dry rot or bacteria is the result of one or more of the following causes that occurs during the policy period and only if all reasonable means were used to save and preserve the property from further damage at the time of and after that occurrence.
a. A "specified cause of loss" other than fire or lightning; or
b. Flood, if the Flood Coverage Endorsement applies to the affected premises.
2. We will pay for loss or damage by "fungus", wet or dry rot or bacteria. As used in this Limited Coverage, the term loss or damage means:
a. Direct physical loss or damage to Covered Property caused by "fungus", wet or dry rot or bacteria, including the cost of removal of the "fungus", wet or dry rot or bacteria;
b. The cost to tear out and replace any part of the building or other property as needed to gain access to the "fungus", wet or dry rot or bacteria; and
c. The cost of testing performed after removal, repair, replacement or restoration of the damaged property is completed, provided there is a reason to believe that "fungus", wet or dry rot or bacteria are present.
3. The coverage described under E.2. of this Limited Coverage is limited to $15,000. Regardless of the number of claims, this limit is the most we will pay for the total of all loss or damage arising out of all occurrences of "specified causes of loss" (other than fire or lightning) and Flood which take place in a 12-month period (starting with the beginning of the present annual policy period). With respect to a particular occurrence of loss which results in "fungus", wet or dry rot or bacteria, we will not pay more than a total of $15,000 even if the "fungus", wet or dry rot or bacteria continues to be present or active, or recurs, in a later policy period.
1. "Fungus" means any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi.
2. "Specified Causes of Loss" means the following:
Fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage.
c. 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.
(Commentary: Remember that we excluded mold previously except under certain circumstances – namely fire, lightning, and the coverage provided as part of this additional coverage. The additional coverage allows for a $15,000 limit per 12 month policy term. The $15,000 includes testing after the protocol is begun. We ruled out that this is a flood earlier, so that leaves us with “specified causes of loss”. As seen before in the windstorm exclusion endorsement. “windstorm or hail” is deleted from the list of “specified causes of loss”, and water damage is defined in such a way that this loss is not attributable to “water damage” as defined. Therefore, this loss does not fit any of the potentially covered causes of loss for mold. I would deny both the mold and testing for mold. Since we don’t cover mold damage in this scenario, why would we pay to find out if it is present? I believe a partial denial for mold is in order.)
So, I have chosen my divergent roads through the woods and here is the destination at which I arrive:
Water Remediation and Dry Out: $2,750 (I might actually owe only a portion)
Drywall Damage: $1,650
Insulation Damage outside wall and Ceiling: $750
Paint: Not covered property
Remove, Reinstall, Refinish Base Molding: Not covered property
Hardwood Flooring Replacement: Not covered property
Remove and Reset Contents: Not covered – relates to flooring repair
Mold Testing Excluded
Mold Remediation: Excluded
The unit owner's motel bill: No coverage
My total covered loss (accepting the full dry out costs) $5,650
Minus deductible $5,000
Payable Claim $650
And, oh by the way, we also have to figure out if this loss is the part of the same loss or a different one than the first floor losses. Because, if it is the same loss (and it probably is) and the deductible has been already applied on the first floor losses (and it probably has), then I should be recommending payment of $5,650 rather than $650.