An insurance policy is a contract. A contract that specifically outlines what it does and does not cover in the event of a loss. While working in the industry, I am learning on a daily basis something new regarding the nuances of these contracts, and my goal is to help translate these 40+ contracts into something we can all understand.
One of the most important "need to know" aspects of property insurance I discuss with clients is the endorsement Water Backup of Sewers and Drains.
The easiest way to talk insurance is to think of real life examples. Imagine you return to your house or apartment after a long day at work and are greeted at the door with a horrifying smell. You walk in to find a toilet overflowing. The floor is soaked straight through the floorboards and has destroyed the entertainment room below. Or even, let's say you are greeted by that smell on Monday morning as you walk into your office but instead of a couch and TV in the room below, the damage is in the server room. But that's okay. You have insurance! You're covered, right? Your insurance company has "seen it and covered it" and they tell you you're protected from "mayhem." This could certainly be described as such!
The standard Property Insurance policy will exclude coverage for a loss resulting from water. So to provide coverage, it needs to be added back through either an endorsement or separate policy. How and what do you need to add back protection for the flooded basement?
First, we need to understand that you and the insurance company probably define a "flood" differently. Anytime water enters a premise, it's not always the result of a flood. A flood is defined in the insurance world as a temporary or permanent condition where two or more acres of normally dry land or two or more properties are inundated with water or mudflow. Think flood = natural event (i.e. a river overflow, flash flood from rainwater, etc.). "Flood" Insurance must be purchased through the National Flood Insurance Program. The details of that are another topic for another blog.
Water entering a premise from an "unnatural event," like our examples above, would need to have the Water Backup of Sewers and Drains endorsement, or something similar, in order for coverage to respond. Most Homeowners Insurance carriers will not automatically add this endorsement. If they do, it will have a specific sub-limit of $5,000 or $10,000. Think of the cost to remove the water and dry the space, and then replace the sheetrock, carpeting, electrical, furniture, etc. The cost can add up quickly. If it's for your business, think of the expenses you'd incur while temporarily out of service. If you have a non-covered event, the Business Income coverage will not respond either! Properly adding an adequate Water Backup limit if often very affordable. It just requires someone to know enough to ask.
Insuring a piece of property can be expense, and it's everyone's hope the policy is never triggered into action by a loss. But stuff happens that's out of anyone's control. And when it does, you might as well be sure your insurance responds the way you expect it to.