Author: David Surles
A dwelling and the personal property within the dwelling can sustain extensive damage from water and waterborne material that backs up from sewers or drains located on the residence premises or away from the premises. These types of losses can be caused by a number of scenarios, including:
Backup of a sanitary sewer system maintained by a municipality off the residence premises because the system is clogged, broken or at capacity. This scenario is described in an article published in the Austin [Texas] American-Statesman several years ago. The article told the story of an Austin resident who returned home to find tainted water bubbling out of the toilet and ankle-deep sewage throughout the house. A city utility worker traced the problem to a blockage in the sanitary sewer about a block away from the home. After initially telling her the city was responsible for the backup and would be responsible for the cleanup, city officials ultimately said the city was not liable for such property damage claims under state law.
Backup of a storm sewer system maintained by a municipality off the residence premises because the system is clogged, broken or at capacity (not caused by flood). A blocked storm sewer prevents rain water from entering the system and allows excess water to run across the surface of the ground until it finds some other outlet. If a house is between the storm sewer and that outlet, the water may enter the house through doors, walls and other openings.
Backup of a wastewater system on the residence premises because the system is clogged, broken or at capacity. A wastewater pipe begins at a drain (in a bathtub, shower, sink or household appliance like a dishwasher or clothes washer), traverses through the pipe system within the dwelling, and then exits the dwelling through the pipe system in the walls and foundation. It then runs underground and eventually connects to the municipal sanitary sewer system off the residence premises or a septic system on the residence premises. If an object is introduced into the system and causes a blockage somewhere within the system on the insured's premises, wastewater and waterborne material will back up from the blockage and overflow through the drain or appliance.
The unendorsed ISO homeowners policy (05 11 edition – all forms) purports to exclude all such losses with an exclusion that is summarized as follows:
We do not insure for loss caused directly or indirectly by water or waterborne material which backs up through sewers or drains. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. This exclusion applies whether or not the loss event results in widespread damage or affects a substantial area. This exclusion applies regardless of whether the loss is caused by an act of nature or is otherwise caused. This exclusion applies to, but is not limited to, escape, overflow or discharge, for any reason, of water or waterborne material from any boundary or containment system.
Definition of Key Terms
Definitions of key terms used and inferred in the exclusion or elsewhere in the policy (from a standard dictionary) are key to understanding this exclusion and how it relates to water-related causes of loss that are covered.
Sewer means "an artificial conduit to carry off sewage and sometimes surface water" [as from rainfall- e.g., a storm sewer].
Sewage means "refuse liquids or waste matter carried off by sewers" and therefore includes wastewater [after its use in a commode, bathtub, sink, dishwasher, or some other appliance], as well as solid water-borne wastes.
Drain means "a means (as a pipe) by which liquid matter is carried away." Dwellings have drains that carry water away from commodes, bathtubs, showers, sinks, air conditioners and dish and clothes washing machines. These drains direct the wastewater and waterborne waste to the underground sewer pipes on the residence premises and then to the sanitary sewer system off the premises, or to a septic system on the premises.
Plumbing means "the apparatus (as pipes and fixtures) concerned in the distribution and use of water in a building," and therefore is distinguishable from sewer in that a plumbing system includes the distribution of water from outside sources for use within a building, as well as the sewer system that removes water and waterborne waste from the building.
Backs Up means "an accumulation caused by a stoppage in the flow."
Discharge means "to release from confinement."
Overflow means "to fill a space to capacity and spread beyond its limits."
Through (as in "through sewers or drains") is "a function word to indicate movement from end to end or from one side to the other."
Backups on the Residence Premises
The exclusion applies to loss caused by "water or waterborne material which backs up through sewers or drains." In our opinion, damage caused by water or waterborne material that backs up from a blockage within the plumbing or sewage systems on the insured premises is NOT excluded, because the water has not gone all the way through the sewer or drain (from one end to the other).
This interpretation is bolstered by referring to the accidental discharge cause of loss found in the ISO homeowners forms HO-3 and HO-4 for personal property, HO-2 for dwelling, other structures and personal property and HO-6 for dwelling and personal property, which is summarized as follows:
We insure for direct physical loss caused by Accidental Discharge or Overflow of Water, unless the loss is excluded in Section I – Exclusions. This peril means accidental discharge or overflow of water from within a plumbing system. This peril does not include loss on the residence premises caused by accidental discharge or overflow which occurs off the residence premises. In this peril, a plumbing system does not include a roof drain, gutter, downspout or similar fixtures or equipment.
Why would the policy specifically cover overflow of water from within a plumbing system, and then exclude the overflow if it was caused by a blockage within the plumbing system? Why would the policy specifically exclude from this peril loss caused by discharge or overflow which occurs off the residence premises? The only logical conclusion is that the sewer backup exclusion does not apply to water that backs up due to a blockage within the system on the insured's premises.
Forms HO-3 and HO-5 contain language that further supports this interpretation. There is an exception to certain exclusions that apply to the all-risk coverage provided to the dwelling and other structures (HO-3 and HO-5), as well as the personal property (HO-5), summarized as follows:
We insure against direct physical loss to property described in Coverages A and B [and C in form HO-5]. We do not insure, however, for loss caused by wear and tear or deterioration; settling of foundations; or nesting or infestation by any animals. Exception: Unless the loss is otherwise excluded, we cover loss resulting from an accidental discharge or overflow of water from within a storm drain, water or sewer pipe off the residence premises, or plumbing system on the residence premises.
Again, why would the policy specifically cover these types of losses from blockages – on- and off-premises – if such losses were otherwise excluded by the sewer backup exclusion?
A final clue to policy intent is the fact that the wording in the sewer backup exclusion on the homeowners forms is distinguishable from the wording found in a similar exclusion in ISO commercial property forms. Those forms exclude "water that backs up or overflows from a sewer or drain," rather than through a sewer or drain.
Unfortunately, this interpretation is not supported by the wording of recent editions of Endorsement HO 04 95, which was intended to cover losses otherwise excluded by the sewer backup exclusion in the main form. The following background information on the endorsement was provided by ISO when the 2009 edition of the endorsement was introduced:
The Water Back-Up and Sump Discharge or Overflow endorsement has been available in most states since 1993. In general, the endorsement was originally designed to provide a limited amount of coverage for damage caused by water that flows from within the dwelling via its sewer or drain lines but backs up because, for example, the line is clogged or broken, or municipal sewer lines or storm drains off the residence premises are broken or at capacity.
Agents have expressed concerns, in general, with respect to the endorsement not expressly addressing that the water or waterborne material originates from within the dwelling.
This background information clearly implies that the unendorsed homeowners policy never covered damage caused by water that backed up from a clogged or broken sewer system on the insured's premises. Then, it goes on to imply that changes made to the endorsement in 2009 were intended to "address" concerns about coverage for damage caused by water originating with the dwelling. Rather than just addressing the concern, the additional wording restricts coverage so that it now applies only to water originating within the dwelling.
The next section of this report reviews the history of endorsement HO 04 95 from 2000 to present.
Endorsement HO 04 95 – Water Back-Up and Sump Discharge or Overflow Coverage
This endorsement was first introduced 1993 with an edition date of 11 92 and was revised by newer editions in 2000 (10 00), 2009 (01 09), 2011 (05 11) and 2014 (01 14).
The sewer backup coverage provided by the 2002 and 2009 editions of the endorsement is summarized as follows:
We insure, up to $5,000, for direct physical loss, not caused by the negligence of an insured, to property covered under Section I caused by water or waterborne material which backs up through sewers or drains.
The Water Damage Exclusion is replaced by the following: We do not insure for loss caused directly or indirectly by flood or surface water, or by water or waterborne material which backs up through sewers or drains as a direct or indirect result of flood. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
This wording clearly covers all types of sewer backup scenarios mentioned above, unless the sewer backup was caused by flood. The restated Water exclusion confuses that issue by excluding both flood and surface water and then mentioning only flood in the sewer backup portion of the exclusion. However, the intent seems to be clear that the sewer backup coverage provided by the endorsement includes water that backs up from a storm sewer away from the residence premises, unless there was an actual flooding event.
In the 2011 and 2014 editions of endorsement HO 04 95, the built-in $5,000 limit was removed and provision was made for a limit selected by the insured, with options ranging from $5,000 to $25,000.
The 2011 edition of the endorsement also introduced changes to the wording that resulted in significantly reduced coverage provided by the endorsement, despite the ISO explanatory bulletin issued with the new edition that claimed "this is a restatement of coverage." The 2011 edition is summarized as follows (with certain phrases underlined for emphasis):
We will pay up to the Limit of Liability shown in the schedule for direct physical loss, not caused by the negligence of an insured, 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. The Section I – Water Exclusion does not apply to the coverage provided under this endorsement.
The new phrase introduced in this 2011 edition – "which originates from within the dwelling where you reside" – eliminates coverage for damage caused by the first and second scenarios described above – water or waterborne material that backs up from a sanitary sewer or storm sewer off the premises, because the water or waterborne material that overflows into the dwelling did not originate from within the dwelling. In the case of a municipal sanitary sewer problem, the sewage overflowing into the dwelling originated in other people's homes. In the case of a storm sewer problem, the water coming into the dwelling is rain water flowing across the surface of the land. The very fact that ISO removed the entire Water Exclusion from "the coverage provided under this endorsement" proves it. There is no need to exclude flood or surface water from the sewer backup coverage if the water or waterborne material must originate within the dwelling in order to be covered.
The 2014 edition of the endorsement brings an altered Water Exclusion back to the sewer backup coverage, summarized as follows:
We will pay up to the Limit of Liability shown in the schedule for direct physical loss, not caused by the negligence of an insured, 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.
With respect to the coverage provided under this endorsement, the Water Exclusion is replaced by the following: We do not insure for loss caused directly or indirectly by water which backs up through sewers or drains as a direct result of flood or surface water. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. This exclusion applies whether or not the loss event results in widespread damage or affects a substantial area. This exclusion applies regardless of whether the loss is caused by an act of nature or is otherwise caused. This exclusion applies to, but is not limited to, escape, overflow or discharge, for any reason, of water or waterborne material from any boundary or containment system.
The revised wording in the 2014 edition reinforces the intent of the 2011 edition with a stronger reliance on the Water Exclusion to preclude coverage for sewer backup caused by flood or surface water.
Negligence of an Insured
When ISO first introduced endorsement HO 04 95 in 1993, the coverage extension for sewer backup was restricted to damage "not caused by the negligence of an insured."
Insured persons in the ISO homeowners policy include the named insured and residents of the named insured's household who are relatives or other persons under the age of 21 in the care of the named insured or resident relative.
The definition of "negligence" from a standard dictionary is "failure to exercise the care that a prudent person usually exercises." In legal terms, the "prudent person" against whom the standard of care is measured is one who is similarly situated. In other words, the actions of a 12-year-old child are judged against the actions of a "prudent" 12-year-old child. However, the law also recognizes the doctrine of parental responsibility for the negligent actions of their children, as well as the parents' failure to control their children's actions.
To put this concept of negligence into the context of endorsement HO 04 95, sewer backup coverage may not apply if an insured over the age of majority introduces a foreign object into the sewer system (such as dumping something down the toilet), because a "prudent person" would know better. In addition, the parent of a minor may be negligent for failing to prevent the minor from introducing a foreign object into the sewer system.
The negligence exception may also apply to an insured who fails to maintain a septic system in accordance with generally-accepted maintenance procedures.
No other cause of loss covered on the homeowners policy is subject to a "negligence" exception. A fire caused by a negligent cooking technique isn't excluded. An explosion caused by doing something stupid with a gas-fueled fireplace or appliance isn't excluded. Why in the world do we have to contend with a negligence exclusion on the sewer backup exclusion?
Summary
Despite ISO and insurance company attestations to the contrary, we believe:
(1) The unendorsed homeowners policy covers the third loss scenario mentioned at the beginning of this report: damage caused by water backing up into the dwelling from a blockage on the residence premises; and
(2) Changes made to endorsement HO 04 95 over the years have significantly reduced the additional coverage provided by the endorsement to the extent that it is almost worthless if you believe our statement in (1) above is correct.
The chart below demonstrates how the unendorsed and endorsed homeowners policy provides coverage for the sewer backup loss scenarios mentioned at the top of the article, indicating also the differences between our interpretation and ISO's explicit and implicit interpretation.
ISO Homeowners Forms – Sewer Backup Coverage Comparison Chart
The following chart summarizes our interpretation of coverage provided by the unendorsed ISO homeowners form and how the coverage changes by adding different editions of ISO endorsement HO 04 95.
"C" reflects our interpretation that coverage exists for a loss scenario mentioned at the top of this report, while "NC" reflects our interpretation that the loss is excluded. An asterisk (*) beside the "C" or "NC" indicates that ISO and insurance companies using these endorsements may disagree with our interpretation.
Loss Scenario
|
ISO Homeowners Forms |
|
Unendorsed |
HO 04 95
2000
2009 |
HO 04 95
2011
2014
|
Backup of a sanitary sewer system maintained by a municipality off the residence premises because the system is clogged, broken or at capacity
|
NC |
C |
NC* |
Backup of a storm sewer system maintained by a municipality off the residence premises because the system is clogged, broken or at capacity (not caused by flood)
|
NC |
C |
NC* |
Backup of a wastewater system on the residence premises because the system is clogged, broken or at capacity – not caused by the negligence of an insured
|
C* |
C
|
C |
Backup of a wastewater system on the residence premises because the system is clogged, broken or at capacity – caused by the negligence of an insured
|
C* |
NC |
NC |
June UPDATE:
Last Updated: October 14, 2024
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