Perspectives | Water Damage and Flood Insurance

Insuring Water Damage and Flood

January, 2008 - We think it's ironic that water, the universal solvent, is one of the most universally misunderstood insurance terms. Ask any business owner or homeowner, and you're likely to hear that either they had a flood, sewer back up or broken pipe claim denied or know of someone who has. In our coverage reviews, water is at the top of our list of exposures to identify, and too often, correct.

In commercial property insurance policies water and water damage are two different perils.

Water is synonymous with flood, which is the overflow of a body of water. The source of water must be outside the insured building and foundation -- or under it. Sewer back up is another kind of water peril in commercial policies.

Water damage has a different meaning in commercial policies. Water damage comes from within. It can be water in a heating system or an appliance but its damaging presence must be the result of breakage, freezing, an explosion or other accident.

Now for the confusing part. In homeowners policy forms water damage means sewer back up and flood and other outside sources of water. Further, homeowners policies do not link the perils of frozen pipes or broken appliances to the term water damage. Homeowners policies automatically provide a limited dollar amount of coverage of frozen pipes, provided the premises were not vacant or unoccupied at the time of loss -- or, that the insured either drained the pipes of an unheated vacant building or took reasonable care to keep the heating system on.

Confused? Let's lay down one absolute. Flood, whether included under the commercial definition of water or the homeowners definition of water damage, is always excluded. It has to be added by endorsement or through the purchase of a separate flood policy. On the opposite page we explain how water, water damage and flood are covered.