Tech Talk: Water Backup and Sump Pump Overflow Coverage and the Homeowner
By Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, MLIS, LIA, CPIW
An interesting question: Does everybody need a Water Backup and Sump Pump Overflow endorsement or does nobody need it? (And what does it do?) I was modifying an outline for an in-house program on the HO-2011 and reviewed the 2011 version of the endorsement. Time to talk, folks.
First …Why Would We Need It?
Policy exclusions are a likely candidate for “why” we might need it, and sure enough, personal lines policies include an exclusion under “concurrent causation.” This exclusionary section tells us that – whether it is the sole cause of loss, a partial cause of loss, the first thing that caused the loss or the last – there just won’t be coverage. Period!
The following is from HO 16 10, an endorsement modifying the water exclusion in the HO-2000/HO-91 after Hurricane Katrina, as well as the language currently in the ISO HO-2011 filing:
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.
Water
This means:
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;
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;
c. Water below the surface of the ground, including water which exerts pressure on, or seeps, leaks or flows through a building, sidewalk, driveway, patio, foundation, swimming pool or other structure; or
d. Waterborne material carried or otherwise moved by any of the water referred to in A.3.a. through A.3.c. of this exclusion.
This Exclusion A.3. applies regardless of whether any of the above, in A.3.a. through A.3.d., is caused by an act of nature or is otherwise caused.
This Exclusion A.3. applies to, but is not limited to, escape, overflow or discharge, for any reason, of water or waterborne material from a dam, levee, seawall or any other boundary or containment system.
However, direct loss by fire, explosion or theft resulting from any of the above, in A.3.a. through A.3.d., is covered.
The water damage exclusion in a property policy is a LONG one. Often exclusions are included when a loss is potentially catastrophic, such as a flood, or when the situation presents no “risk of loss” as it is a “given” that over time damage will occur, as with sub-surface water.
Flood is excluded and needs to be purchased through the Flood Policy.
Sub-surface water can seep in over time and cause damage, or water tables can exert pressure on foundations and other structures in or on the ground, causing damage. There is no endorsement to cover this type of situation and the flood policy won’t respond, either.
Water or Waterborne Material That Backs Up Through Sewers
This is an exclusion that was added to property policies sometime in the 1950s. After WWII, there was such extensive construction and expansion that town and city sewer systems couldn’t handle it. This was detrimental for “all risk” policies that must cover all loss that is not excluded.
After numerous claim payments due to direct flow from the city sewer system into individual homes, the exclusion was added. It started as just the “water backup” exclusion but has been expanded to also exclude the stuff that is IN the water!
Water or Waterborne Material That Overflows or is Discharged from a Sump or Sump Pump
In areas with a high water table, a home is quite often made with a sump hole in the foundation. If the hole is not sufficient, then a sump pump is installed. The pump keeps the water from “overflowing” the hole into the building. If the electricity goes off, or the pump malfunctions, or the water is too profuse for the pump to allay, then it’s water, water everywhere!
ISO created a “small” buyback in 1995 called the Water Backup and Sump Pump Discharge or Overflow endorsement. It was revised in the 2011 filing. Every insured that has a sump or sump pump should be offered this endorsement!
That’s kind of a no-brainer. Under the original ISO DP and HO endorsements, only $5,000 of coverage is available. Under the 2011 version, $25,000 is now available.
If You Don’t Have a Sump or Sump Pump, Do You NEED the Endorsement?
It appears you should have the endorsement if you have public sewer! Can there be a malfunction or an overload in the public sewer system? Sure! Construction in certain areas is still going strong, and the demands on the public system could cause direct flow back into your insured’s home, just as it did in the ’50s!
What if your client is NOT part of a public sewer system, but has their own personal septic system?
Are a Sewer and a Septic System Considered the Same Thing?
I guess it depends on which dictionary you use! (I use Dictionary.com.)
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Sewer can mean: “an artificial conduit, usually underground, for carrying off wastewater and refuse, as in a town or city” or “An artificial, usually underground conduit for carrying off sewage or rainwater.”
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Septic Tank/System can mean “a tank in which solid organic sewage is decomposed and purified by anaerobic bacteria.”
It appears that these two things have the same purpose, but the delivery is different. Sewer is delivery to an off-premises location, while and septic is “self-contained on the property.
What About the “Accidental Discharge” Peril?
Won’t that cover me if I have a septic system and the “overflow” is caused by a blockage on my property?
In exclusions we often find coverage.
And that is what we see in the Coverage A and B exclusion under the ISO HO-2000/2011 language, which states that the following WILL be covered under the HO-3 and 5 for Coverage A and B:
(6) Any of the following:
(a) Wear and tear, marring, deterioration;
……
Exception To c.(6)
Unless the loss is otherwise excluded, we cover loss to property covered under
Coverage A or B resulting from an accidental discharge or overflow of water or
steam from within a:
(i) Storm drain, or water, steam or sewer pipe, off the "residence premises"; or
(ii) Plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance on the "residence premises". This includes the cost to tear out and replace any part of a building, or other structure, on the "residence premises", but only when necessary to repair the system or appliance. However, such tear out and replacement coverage only applies to other structures if the water or steam causes actual damage to a building on the "residence premises".
We do not cover loss to the system or appliance from which this water or steam escaped.
For purposes of this provision, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, down spout or similar fixtures or equipment.
The ISO HO-91:
e. Any of the following:
(1) Wear and tear, marring, deterioration;
….
If any of these cause water damage not otherwise excluded, from a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance, we cover loss caused by the water including the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. We do not cover loss to the system or appliance from which this water escaped.
Under Coverage C named perils in the ISO HO-2000/2011 (HO-91 similar), it states:
12. Accidental Discharge Or Overflow Of Water Or Steam
a. This peril means accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance
…..
c. In this peril, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment.
d. Section I – Exclusion A.3. Water Damage, Paragraphs a. and c. that apply to surface water and water below the surface of the ground do not apply to loss by water covered under this peril.
So, is a septic system part of a plumbing system? Based on the dictionary definition, yes: “the system of pipes and other apparatus for conveying water, liquid wastes, etc., as in a building” … “the pipes, fixtures, and other apparatus of a water, gas, or sewage system in a building.”
Therefore, the DISCHARGE of an ON-PREMISES plumbing system SHOULD BE covered under a broad form named peril policy as well as an “open peril” or “special” form policy.
Then why the need for the backup endorsement??? That’s a good question, and it has wound up in court MORE TIMES than it SHOULD!
The most referred-to case for and against coverage is Hallsted v. Blue Mountain Convalescent Center, Inc. 595 p.2D 574 (Wash. App 1979). In this case, the sewer pipe OFF the residence premises clogged and resulted in a sewer backup claim to the insured’s second floor bathroom. The court needed to determine whether the accidental discharge peril should apply, and decided that IT SHOULD NOT.
In the court’s decision it was stated:
“If the cause of the discharge is in the insured’s system, e.g., a clogged sink drain which causes water in the plumbing system to overflow, the sewer back up exclusion does NOT apply. IF the cause of the discharge is outside that system, e.g., a clogged ewer pipe which forces water from outside the insured’s system to overflow, then the exclusion IS applicable even though the water flowed through the insured’s plumbing system.”
Accidental Discharge and the Septic System
Theoretically, if you have a septic system, it is ON your premises and any overflow SHOULD be due to a clogging of YOUR PLUMBING system, and accidental discharge is a covered situation.
However, some companies try to deny the loss by focusing on the Section I general exclusion of water that backs up through a drain, instead of focusing on the accidental discharge from a plumbing system peril, which would allow coverage for the loss. Yes, I know, “ambiguity is found on behalf of the client,” but where is it found IN COURT? Phooey!
Sometimes just to make it easier on YOURSELF, never mind your client, adding the Water Backup and Sump Overflow endorsement ON the policy can assure that there should be at least $5,000 of coverage, WITHOUT A FIGHT. However, $5,000 is not a lot of money in 2021, and identifying that pipe blockage on the premises causing the discharge is a covered situation up to the full policy limit will better benefit your client.
How Does the Water Backup and Sump Discharge Endorsement Read?
The HO-91 and HO-2000 version of the HO 04 95 Water Backup and Sump Discharge or Overflow endorsement states:
A. Coverage
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 water-borne material, which:
1. Backs up through sewers or drains; or
2. Overflows or is discharged from a:
a. Sump, sump pump; or
b. Related equipment;
even if such overflow or discharge results from mechanical breakdown. This coverage does not apply to direct physical loss of the sump pump, or related equipment, which is caused by mechanical breakdown.
This coverage does not increase the limits of liability for Coverages A, B, C or D stated in the Declarations.
This language supports the court cases addressing “direct flow from city to you,” where the discharge starts OFF the premises (as opposed to accidental discharge originating from the INSURED’s plumbing system ON the insured’s premises).
Remember, words DO matter, and determining the origin of the backup is vital to proper disposition of the claim.
Beware of the 2011 Edition “Limited” Water Backup and Sump Discharge or Overflow Coverage
Uh-oh, where does that word “limited” come in when one can now buy up to $25,000 of coverage?!
A. Section I – Property Coverages
The following coverage is added:
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:
1. Originates from within the dwelling where you reside and backs up through sewers or drains; or
2. Overflows or is discharged from a:
a. Sump, sump pump; or
b. Related equipment;
even if such overflow or discharge results from mechanical breakdown. This coverage does not apply to direct physical loss of the sump pump, or related equipment, which is caused by mechanical breakdown.
This coverage does not increase the limits of liability for Coverage A, B, C or D stated in the Declarations.
SAY WHAT????? Now coverage ONLY applies IF the water or waterborne materials ORIGINATE WITHIN the dwelling where you reside? I’ve had a few agents and company personnel ask me WHY this language was changed, because they believed the new language removed the original reason for attaching the endorsement to the policy!
If you are on public sewer (public, as in, owned by the government) and there is a direct flow from the government to you, there is NO COVERAGE – either in the unendorsed policy or in the endorsement! We already know that direct flow from the government to you is NOT accidental discharge and therefore NOT covered.
So, clients on city sewer don’t have coverage within the policy, and with an endorsement added for additional premium for direct flow from off premises to you. Pay more get … nothing!
For your customers with septic systems, you’ll have to discern how the company interprets “accidental discharge.” Does the company misinterpret accidental discharge coverage, and therefore the client needs to pay more to have this endorsement, which ONLY provides a maximum of $25,000 of coverage instead of the homeowners policy limits?
If your client has the HO-2011, has city sewer, and buys this endorsement, you’d best talk to your carrier before a loss, or there can be some UGLY discussion in the event of a denied claim – where the insured PAID for a useless endorsement.
The news is better if your client has a sump pump. They have ALWAYS needed this endorsement, and with the HO-2011, they can buy a higher limit of insurance!
Gotta love policy interpretation and edition changes!!
Please remember that part of MAIA service is answering questions and providing information. Please feel free to email me when you have a coverage question, problem or issue. Perhaps I can help – at imorrill@massagent.com
This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permissions of the author is not permitted.
