Homeowners Insurance & Water Damage
Between them, water damage and freezing account for a considerable portion of all home insurance claims filed each year.
They represented almost half of property damage claims in 2015, and 19.7% of them in 2017, according to the Insurance Information Institute. Only two other sets of perils, wind and hail and fire and lightning, regularly account for a comparable number of claims.
In this article, we will discuss the circumstances when homeowners insurance will cover water-related damage and what situations are typically not covered.
Does Homeowners Insurance Cover Water Damage?
While water backup, sump overflows, burst pipes and similar perils affect numerous homeowners every year, many policies either do not cover them at all or do so in a convoluted fashion. In some cases, policyholders might be surprised to learn that they must pay for the damages mostly or fully out of pocket.
Anything from an unsealed basement to a clogged downspout can result in a situation that doesn’t count as a covered loss.
Home insurance providers distinguish between different sources of water-related damage, with major ramifications for how the policy will treat a claim. For example, if a laundry hose suddenly bursts, sending water pouring into your basement, your policy might provide coverage since this incident qualifies as sudden and accidental. However, if water backs up from outside sewer or drain, you’re likely not covered.
When Homeowners Insurance WILL Cover Water Damage
Policy provisions for water damage coverage vary by carrier. Overall, though, they usually apply to a somewhat narrow range of situations.
For an incident to be covered, it typically cannot be the result of deferred maintenance or gradual damage. The corollary is that accidental and sudden events are covered in many circumstances.
This category includes:
You will always want to check with your insurer, especially on the latter, because the line between what does and does not count as a “flood” or hazard coverage is very fine. Similarly, mold damage may be covered, but only if it’s related to an already covered peril.
If any of these issues can be traced back to poorly maintained plumbing infrastructure, such as pipes that weren’t cleaned out for years or a foundation issue that was not addressed, coverage might not be available. A deductible will apply as well, meaning that you will need to pay a certain amount out of pocket before full coverage kicks in.
When Homeowners Insurance Does NOT Cover Water Damage
There are numerous common exclusions related to water damage:
Unresolved Maintenance Problems
In addition to excluding any losses attributable to neglected infrastructure, standard homeowners policies will also not cover damages from the continuous leaking of pipes, faucets, and other fixtures that could have been repaired or replaced by the homeowner.
Water Backup and Sump Overflow
If water seeps or rushes into your home from an outside source such a drain or a standalone one like your sump pump, chances are your policy won’t cover it. Likewise, any water that enters from at or below ground level (such as groundwater seepage) isn’t normally covered. Some insurers sell separate water backup and sump overflow coverage for these exact situations.
Water accumulation from heavy rainstorms, tropical cyclones, broken dams, sinkholes, and mudslides will count as flooding, which isn’t covered by standard homeowners insurance. To mitigate the risk of flood-related damages, homeowners should purchase separate flood policies, either through the National Flood Insurance Program (NFIP) or via a private insurer.
What Does Flood Insurance Cover?
Flood insurance is closely associated with the NFIP, which is a national program supported by premiums from homeowners and by federally borrowed funds. Homeowners must have a primary residence in a community that participates in the NFIP to be eligible for coverage, but they do not have to live in a high-risk flooding area to qualify. The Federal Emergency Management Agency (FEMA) noted that 20 percent of all flood claims come from low-risk areas.
Federally regulated and insured lenders that provide mortgages in high-risk flooding areas are legally required to offer flood insurance. Most residences covered by NFIP policies are in Florida and Texas, the two most populous states regularly exposed to the dangers of tropical cyclones. Homes in low- to medium-risk locations have the option to purchase a Preferred Risk Policy that provides a lower rate than a standard NFIP policy for coverage of both the dwelling and the belongings within it.
How to Purchase Flood Insurance
FEMA maintains a list of private insurers that sell and service NFIP policies. Some of these carriers also sell their own flood insurance packages, known as Excessive Flood Protection, that provide coverage limits beyond what the NFIP offers. All NFIP-underwritten policies have a 30-day waiting period, meaning that coverage only kicks in a month or so after the policy is purchased. Private insurance might have a shorter waiting period. If you enroll in NFIP, leave it, and then rejoin it at a later date, there is a strong possibility that your premium will rise.
Does Homeowners Insurance Cover Mold Damage?
“Does my policy cover mold?” is one of the most common questions about homeowners insurance, and for good reason. The answer is often “it depends,” as coverage will vary significantly based on where you live and how your insurer has structured your policy.
Mold Coverage is Limited
All states except five (Alaska, Arkansas, New York, North Carolina, and Virginia) have mold limitation models in place for property insurance, allowing home insurers to heavily limit mold coverage. The upshot: Mold is often only covered if it is the direct result of a covered peril or narrowly defined cause, and only then up to a specified limit.
Before the mid-2000s, most homeowners policies stipulated that fungus coverage (mold is a type of fungus) would kick in if it were caused by a listed peril such as damage from a storm. At the same time, they covered mold arising from excessive local humidity, deferred maintenance, flooding, or any of the other situations in which water-related damages are typically not covered.
However, the broad language in these policies changed following a wave of mold-related lawsuits after 2001, resulting in more specific exclusions for mold in common clauses contained in HO-3 policies, the most common type of homeowners insurance. Today, many policies require a special “Limited Fungi, Wet or Dry Rot, or Bacteria Coverage” endorsement for mold coverage.
This endorsement, which excludes damage attributable to fire or lightning, defines in detail when mold is covered, in some cases setting a hard limit on how much the policy will pay. Insurers may opt to pay only up to that maximum amount for any number of occurrences related to mold removal and clean-up. Considering the cost of eradicating damaging and possibly poisonous mold from a home, even several thousand dollars’ worth of coverage might not provide all that much protection.
Such annual limits on mold liability are common, as are limitations on coverage related to covered water losses. Homeowners have the option to increase their policy limits and to add further endorsements that shore up mold protection. A flood endorsement or policy is necessary for the policy to cover mold that arises from a flooding event.
How to File a Claim for Mold Damage
When filing a claim related to mold, be sure to take action as soon as possible, since mold endorsements do not cover repeated incidents such as seepage if it can shown that the homeowner knew about the issue but didn’t take action. Compile photographic evidence and contact your agent to review your policy and put together the claim.