Author: Mike Edwards
"We have been getting some questions from our insureds about coverage under a Homeowners Policy for exposures that developed after the recent floods. I want to put together an FAQ sheet for our Personal Lines staff, so we will all be on the same page when talking to our insureds. I am attaching some issues and questions we've come up with so far. We would appreciate your comments on these technical coverage issues, as well as any additional ideas you have."
I think your plan to develop an FAQ sheet is a very good idea. Here are my thoughts and suggestions. For the discussion below, assume that your insureds are Jack and Jill Smith, whose home was damaged by the recent floods. The coverage form excerpts and commentary below are based on ISO (Insurance Services Organization) forms and endorsements. Proprietary forms may be different.
Situation #1: Water & sewer backup
Excerpt:
HO 00 03 05 11
Section I – Exclusions
A. 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. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
3. Water
b. Water which:
(1) Backs up through sewers or drains; or
(2) Overflows or is otherwise discharged from a sump, sump pump or related equipment;
However, direct loss by fire, explosion or theft resulting from any of the above, in A.3.a. through A.3.d., is covered.
Comments:
(1) Water which backs up through sewers or drains is excluded under A.3.b.
(2) The ISO Homeowners Policy does not provide an exception or buyback for backup of sewers and drains caused by flooding.
(3) Note, however, that there is coverage for fire, explosion or theft that is a consequence of any of the various types of water events listed in the Water Exclusion. [See last paragraph of the Water exclusion above.]
(4) The NFIP flood policy provides coverage for the backup of sewers and drains, in an exception to an exclusion:
Excerpt:
NFIP
Dwelling Form (Standard Flood Insurance Policy)
V. Exclusions
D. We do not insure for direct physical loss caused directly or indirectly by any of the following:
5. Water or water-borne material that:
a. Backs up through sewers or drains;
b. Discharges or overflows from a sump, sump pump or related equipment; or
c. Seeps or leaks on or through the covered property;
unless there is a flood in the area and the flood is the proximate cause of the sewer or drain backup, sump pump discharge or overflow, or the seepage of water;
Comments:
(1) Backup of sewers or drains caused by flooding is covered under the NFIP policy.
(2) However, in the growing market for proprietary flood insurance, coverage may be different than the NFIP policy.
(3) Reference article below.
Situation #2: Water backup or overflow endorsement
RE: HO 04 95 01 14 Limited Water Back-Up and Sump Discharge of Overflow Coverage
Comments:
(1) Coverage applies to property covered under Section I caused by water, or waterborne material, which:
- Originates from within the dwelling where you reside and backs up through sewers or drains; or
- Overflows or is discharged from a sump, sump pump, or related equipment.
(2) The Water Damage Exclusion in the endorsement includes the following:
C. Section I - Exclusions
1. Water
This means water which backs up through sewers or drains, or overflows or is discharged from a sump, sump pump or related equipment, as a direct or indirect result of:
a. Flood, surface water, waves, including tidal wave and tsunami, tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind, including storm surge;
Comments:
(1) Coverage only applies for backups of sewers and drains, or sump pumps, which originate at the residence premises.
(2) The Water Exclusion excludes backups and overflows caused by flood.
Issue #3: NFIP Loss Settlement: Replacement Cost (RC) vs ACV
Replacement Cost
(1) Available only for a single-family dwelling that is the principal residence.
(2) Amount of insurance must be either 80% of the RC, or is the maximum available under NFIP.
Actual Cash Value (ACV)
(1) Applies to dwellings that: (a) are not the principal residence; or (b) do not meet the required insurance for RC (see above).
(2) If the dwelling is a principal residence that does not qualify for RC due to inadequate limits of insurance carried, then the payment is a proportion of the required insurance ("did over should") applied to cost to repair or replace, or ACV – whichever is greater.
(3) All other types of property (certain building items and all personal property) are covered on an ACV basis only.
(4) NFIP Resource: What Is Covered and Not Covered Under My NFIP Policy
Issue #4: Property moved away from the residence due to the flood, and subsequently damaged by a Covered Peril
Excerpt:
C. Coverage C – Personal Property
1. Covered Property
We cover personal property owned or used by an "insured" while it is anywhere in the world. After a loss and at your request, we will cover personal property owned by:
a. Others while the property is on the part of the "residence premises" occupied by an "insured"; or
b. A guest or a "residence employee", while the property is in any residence occupied by an "insured".
2. Limit For Property At Other Locations
a. Other Residences
Our limit of liability for personal property usually located at an "insured's" residence, other than the "residence premises", is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater. However, this limitation does not apply to personal property:
(1) Moved from the "residence premises" because it is:
(a) Being repaired, renovated or rebuilt; and
(b) Not fit to live in or store property in; or
(2) In a newly acquired principal residence for 30 days from the time you begin to move the property there.
b. Self-storage Facilities
Our limit of liability for personal property owned or used by an "insured" and located in a self-storage facility is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater. However, this limitation does not apply to personal property:
(1) Moved from the "residence premises" because it is:
(a) Being repaired, renovated or rebuilt; and
(b) Not fit to live in or store property in; or
(2) Usually located in an "insured's" residence, other than the "residence premises".
Comments:
(1) Coverage C applies to personal property worldwide. [See C.1.] Therefore, Jack and Jill's property is covered under their Homeowners Policy, no matter where it is located, so long as the property is damaged by a Covered Peril. [Flood is excluded.]
(2) However, there are sublimits to property at certain locations. Under C.2.a., for personal property that is "usually located" at their secondary residence, the Coverage C limit from their primary Homeowners Policy is 10% of the Coverage C limit, or at least $1,000. Note that this 10% limit would not likely apply to property they temporarily moved from their primary residence to their secondary residence, due to the flood.
(3) If they moved personal property to Jill's parents' house, or to a friend's house, the 10% limit would not apply, because neither of these is a residence of theirs. [C.2.a.]
(4) If Jack and Jill move personal property to a "self-storage facility" (mini-warehouse, etc.), the 10% sublimit would not apply under any ISO HO form except the 2011 edition, which is when ISO added a sublimit for property at a self-storage facility. [C.2.b.] However, note that there is an exception to the 10% limit, if the property is moved because their residence is "Being repaired, renovated or rebuilt; and not fit to live in or store property in."
(5) If Jack and Jill had an HO 00 05 05 11 (Comprehensive Form) vs HO 00 03 05 11 (Special Form), they would have flood coverage for personal property under an exception to the Water Exclusion:
HO 00 05 05 11 Comprehensive Form
Section I – Exclusions
3. Water
This exclusion does not apply to property described in Coverage C that is away from a premises or location owned, rented, occupied or controlled by an "insured".
Referring to item (3) above, where Jack and Jill moved personal property to Jill's parents' house, if that house later also flooded, Jack and Jill's HO 00 05 05 11 would provide coverage for flood damage to the personal property they had taken there.
(6) Most inland marine policies ("personal articles floaters", etc.) do not have a flood exclusion.
Issue #5: Camper at residence premises during repair or reconstruction
Both the Homeowners Policy and Personal Auto Policy provide liability coverage for trailers.
Homeowners Policy: Section II – Liability & Medical Payments exclude "motor vehicles," which are defined as follows:
"Motor vehicle" means:
a. A self-propelled land or amphibious vehicle; or
b. Any trailer or semitrailer which is being carried on, towed by or hitched for towing by a vehicle described in a. above.
Comments:
(1) Jack and Jill's Homeowners Policy provides liability and medical payments coverage for detached trailers, owned, rented, or borrowed, on or off the residence premises.
Personal Auto Policy: Part A – Liability provides coverage for trailers as follows:
B. "Insured" as used in this Part means:
1. You or any "family member" for the ownership, maintenance or use of any auto or "trailer".
Comments:
(1) The PAP provides liability coverage for any trailer, whether attached or detached from an auto, and whether owned, rented, or borrowed. A trailer has to be declared (added to the policy) only if physical damage coverage is desired.
Issue #6: Automobile issues
Comments:
(1) Part D – Physical Damage coverage in the Personal Auto Policy only applies to the auto and its equipment. The PAP would not cover household items, clothing, portable electronics, etc., that were in the auto, if damaged by flood or any other cause, such as theft.
(2) Some autos being driven on flooded streets will stall out. In many cases, this can lead to major engine damage. Here is an article that discusses this coverage issue.
(3) Autos that have been substantially submerged in a flood often end up being resold to unsuspecting buyers later. Louisiana passed a statute after Katrina to address the problem:
32:789. Sale of used water-damaged vehicles
A. No used motor vehicle dealer, nor any person or entity, shall sell, transfer, or convey any used motor vehicle to any person without notifying the buyer or receiver of the vehicle in writing of the extent of any water damage from flooding which occurred to the vehicle prior to the transaction.
B. If a sale, transfer, or conveyance of a used motor vehicle occurs in violation of Subsection A of this Section, the person receiving ownership and title to the vehicle who is not otherwise aware of the damage at the time of the transaction may bring an action to set aside the transaction within one year from the date of the transaction and receive all monies or other property given as consideration for the vehicle less a reasonable assessment for miles driven.
Acts 2006, No. 440, §1; Acts 2009, No. 403, §1, eff. July 7, 2009.
Last Updated: September 16, 2016
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