Water Damage: Are You Covered?

Preston Cavignac, CPCU, CIC, CRM
Water damage is one of the most misunderstood coverages when it comes to commercial insurance policies. Most think that water is a covered peril if their policy contains “full coverage.” Be wary of this term. “Full coverage” does not exist under any policy; it’s a term that is too often used by marketing departments of large insurance companies to sell “higher quality” policies. Coverage will always be subject to the terms and conditions of the policy and every policy has exclusions. In this article, we will be looking at the standard ISO CP 10 30 10 12 Causes of Loss – Special Form, specifically the coverage of Water Damage.

The CP 10 30 is special form policy. This means all perils are covered except for those specifically listed as excluded. This is different than named peril policies which only give you coverage for those specific perils which are named. Under the CP 1030 B.1.g. “water” is excluded. The form states:

  • 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.
    • Water
      • (1) Flood, surface water, waves, tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind.

This exclusion also removes coverage for mudslides, water that backs up from a sewer, drain or sump, water underground pressing on or seeping through any property, etc.

However, water damage is defined later in the policy. It is defined under the definition of Specified Causes of Loss. Under this section, water damage means:

  • (1) 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;
  • (2) accidental discharge or leakage of water or waterborne material as the direct result of the breaking apart or cracking of a water or sewer pipe that is located off the described premises and is part of a municipal potable water supply system or municipal sanitary sewer system, if the breakage or cracking is caused by wear and tear.

The section also explains that water damage does not include loss or damage otherwise excluded under terms of the “Water Exclusion.” However, to the extent that accidental discharge or leakage of water falls within the criteria of this definition, such water is not subject to the provisions of the water exclusion, which preclude coverage for surface water or water under the surface of the ground.

Confusing? Yes! Water damage is difficult to understand. If water is a concern, a flood policy should be considered. These policies can cover additional water losses in addition to the standard flood coverage. To get a better understanding of water damage and what is included in your policy, call your broker to discuss your property and the types of water loss that may be of concern.