NEWS BLOG

An overflow is when the water exceeds its boundaries; the space is filled to capacity and water then spreads beyond its limits. A tub left running creates an overflow. The tub can no longer hold the water running into it, so the water overflows onto the floor and surrounding area.

A discharge is a flowing or issuing out; water coming from a pipe. A leaking pipe discharges water from the hole in the pipe; it is not a back-up or an overflow, it is simply water issuing from a pipe at the wrong spot.

Discharge or Overflow?

The ISO HO 00 03 provides coverage for water damage that is the result of a discharge or overflow of a plumbing, heating, air conditioning, or household appliance if it is on the residence premises. This covers pipes that leak behind walls, floors, or ceilings; washing machines and dishwashers that overflow, toilets that overflow, or storm drains off premises that overflow due to high rains or floods. It is important to note that a sump, sump pump or related equipment, or a roof drain, gutter or downspout or similar equipment is not considered a plumbing system or household appliance. A discharge or overflow caused by a storm drain, water, steam, or sewer pipe  is covered as well if it is off the premises.

The coverage is for repair of the damaged property—the walls, floors, tiling, and carpet, areas that got saturated and need to be repaired or replaced. Even the tear out of a wall, for example, to get to a leaking pipe is covered. What is not covered is the leaking pipe itself; a pipe leak is often caused by simple wear and tear or age of the system, and that is a maintenance item. However, even if the insured is hanging a picture and pokes a hole in a brand new home and new pipes, the damage to the pipe is not covered. The exclusion for damage to the item causing the loss is all encompassing, and has no exceptions.

The policy specifically excludes water that overflows from sumps, sump pumps, or related equipment or water that backs-up through sewers or drains. However this is where a lot of losses occur; sump pumps may fail or be unable to handle the flow of water during a severe storm or flood, and sewers or drains may back-up due to a stoppage in the flow. Overflows are excluded for sumps because that is a common cause of loss; the sump cannot handle the volume of water it receives. For example, if the drain backs up and overflows because of heavy rainstorms, that is not covered under the policy.

To provide coverage for this occurrence there is the Water Back-up and Sump Discharge or Overflow endorsement, HO 04 95. This provides $5,000 of coverage for back up through a sewer or drain or overflow or discharge of a sump, sump pump or related equipment, even if the equipment suffers a mechanical breakdown. For example, the sump pump motor burns out and the basement floods; there is $5,000 of coverage for that damage. The coverage is for water or waterborne material, so coverage is provided for damage caused by items floating in the water. This coverage does not, however, increase the limits of liability for coverages A, B, C, or D in the homeowners’ policy. This takes the problem of defining back-up or overflow out of the equation of certain losses, since the endorsement provides the coverage that is excluded in the main policy itself.

Water, whether it be from pipes, sewers, sumps, or floods, is one of the bigger issues in homeowners policies. There is a lot of confusion surrounding what is and is not covered. Once you consider the definition of the terms, you are on your way to understanding the coverage. As always, policy language rules the day.

Gray Rohrer, 11/27/2013 – 02:04 PM

Saturday marks the last day of one of the mildest hurricane seasons on record, both in terms of named storms and legislative action on property insurance issues. The calm seas, though, belie an undercurrent of turbulence for homeowners.

Many homes in coastal areas face skyrocketing flood insurance premiums starting next year, and some are having trouble selling their homes because of federal legislation tagging next year’sNational Flood Insurance Program rate increases to home sales and other title transfers.

State lawmakers have pledged to find a state-based alternative to the NFIP if private companies don’t step in to offer cheaper flood coverage. There are signs private companies are looking into the market, and the Office of Insurance Regulation has set out guidelines for writing the new business and promised to fast-track review of new filings. The process, though, is likely to take longer than affected homeowners would need to avoid rate shock next year.

In addition to the new flood issue, lawmakers are likely to contend with state entities designed to stabilize the market: Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund, or Cat Fund.

Citizens marked the eighth straight year without major hurricane damage in the state, and with $6.8 billion in surplus the 11-year-old company is in its best-ever financial shape. But the company has moved to that position by pushing customers into the private market, drawing the ire of critics who say the new companies aren’t as financially stable.

Citizens’ total policies have dropped by 312,550 this year, down to 1,062,191. The company remains the largest property insurer in the state, however, covering $330.8 billion worth of property.

“Mother Nature has been kind and again spared Florida from a major storm. Here at Citizens, we have been busy taking advantage of that good fortune by continuing to reduce our exposure and policy count,” Citizens president and CEO Barry Gilway said.

Legislative action related to Citizens may hinge on the progress of the clearinghouse, designed to come online Jan. 2 and designed to shop new and renewal Citizens customers in the private market.

But lawmakers who have been pushing for Citizens rates to rise faster — they have a 10 percent cap on annual rate hikes, except for noncatastrophic sinkhole coverage — will continue to push for changes to the Cat Fund as well, despite the state reinsurance fund’s healthier financial outlook after the string of weak storm seasons.

After two straight years when its reserves and borrowing capacity wouldn’t have been enough to cover its liabilities, the new estimates show the Cat Fund has $12 billion in reserve and could borrow at least $6 billion — about $1 billion more than its maximum $17 billion coverage limit.

Still, free market advocates want more state reinsurance to be pushed into the private market. Lawmakers have resisted such changes in recent years, fearing the more expensive private reinsurance would push insurance rates higher.

“Now that the Cat Fund is at its healthiest, the time is right to shift some of that risk to the private market, so the Cat Fund is never again in a position where it is selling fake coverage,” Christian Camara, director of R Street Florida, a free market think tank, said last month when the latest Cat Fund estimate was released.