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Homeowners Insurance – Understanding Water Damage

The key to understanding if water damage to your home is covered is based on knowing WHERE the water ORIGINATED. A homeowners policy covers water damage, but with significant exclusions and limitations. Typically a policy will pay for sudden and accidental water damage from inside water sources but will not pay for losses caused by […]



The key to understanding if water damage to your home is covered is based on knowing WHERE the water ORIGINATED.

A homeowners policy covers water damage, but with significant exclusions and limitations. Typically a policy will pay for sudden and accidental water damage from inside water sources but will not pay for losses caused by water that finds its way into your home from the outside.

Examples  of inside water sources that cause water damage and that are typically covered are inside water pipe leaks or breaks (like behind a wall or under a sink); or leaks from appliances (like hot water tanks, washing machines, or dishwashers).  Your property deductible is deducted from the covered loss.

It is important to note that it is the “damage” to your home from the water loss that is covered; NOT the repair to the actual item that failed.  Your policy pays for the necessary costs to access (i.e. cut open an undamaged wall to access a broken pipe and then pay to repair the wall) and repair the damage caused by the water.  But, the broken pipe itself, which failed because of wear and tear, decay, defective materials or methods of construction, is not part of the covered loss.  The cost to repair the pipe or appliance is your responsibility.

Let’s take a closer look at FOUR types of water damage:

  1. Roof Leaks
  2. Water Leaks Through a Foundation
  3. Water Backup Through Sewer or Drain
  4. Flood (Excessive Surface Water, Overflow of a Body of Water, Etc.)

Roof Leaks

A typical homeowners policy covers water damage caused by an accidental external cause (for example a tree branch falls on it, windstorm blows shingles off, etc.) and coverage is provided for both the roof and any water damage to your walls, ceilings, carpet, personal property, etc., subject to your deductible.

However, if the water damage is not caused by an accidental external cause and simply because the roof is old and worn out, only the damage to the walls, ceilings, carpet, personal property, etc. is covered…..the roof itself isn’t covered.

The reason that the resulting water damage to the inside of your home is a covered loss, even when a roof isn’t damaged but simply old and worn out and allows water to leak in, is because the “wear and tear” exclusion in a homeowners policy says damage first must be from “accidental direct physical loss”…BUT it also goes on to say “however, we do insure for any resulting loss.”

This makes sense when you consider that most other covered water losses result from something that failed because of wear and tear and leaked water causing damage – like a water pipe that rusts and leaks, or a hot water heater that wears out and leaks, or a water connection that gets old, splits and leaks. So, this is why insurance companies monitor and care about the condition of your roof.

Because of this exception to the “wear and tear” exclusion, an insurance company may periodically inspect the roof on a home they insure to make sure it has not worn out.  If a roof becomes deteriorated or neglected, the insurance company may insist that the roof be replaced or they will cancel the insurance policy.

For a home owner seeking insurance for the first time from an insurance company on a home they purchase or already own, the insurance company or agent will want to know the age of a roof before a policy can be written…if the roof is too old for it’s type (i.e. comp or tar and gravel roofs have a shorter life span than tile roofs), then the insurance company will refuse to write a policy. A more expensive “non preferred” policy will need to be purchased that likely will include a roof exclusion. Once a new roof is put on, then the exclusion will be removed or a new cheaper preferred policy written.

Water Leaks Through a Foundation

A typical homeowners policy excludes water damage caused by:

Water below the surface of the ground, including that which exerts pressure on, or seeps or leaks through a building, wall, bulkhead, sidewalk, driveway, foundation, swimming pool, hot tub or spa, including their filtration and circulation systems, or other structures.

To keep homeowners policy premiums affordable for everyone, coverage is not provided for losses that can be prevented by sound building practices or as a result of normal wear and tear, rather than sudden and accidental events.  So, the main reasons it is necessary to exclude “water below the surface” from a policy are:

  1. Current construction methods require the foundation to allow water to drain away from the home. Older homes may not have followed these methods or due to improper grading, the shifting of the soil or past severe water events, water may find a path to begin collecting underground next to the home.    If the intrusion of water through foundations were covered by insurance, then a home owner would have no incentive to correct the problem.  Covering these events would give rise to repeated claims after every periodic severe weather season.
  1. Over time, every foundation settles, cracks, and eventually deteriorates.  This “wear and tear” may require a home owner to excavate around the foundation (and basement) to place drain tiles and patch/re-seal the foundation and basement concrete walls.  Again, if this type of water loss was covered then a home owner would have no financial incentive to repair or improve their home.

 

Water Backup Through Sewer or Drain

Most homeowners’ policies exclude or restrict water damage caused by the backup of sewers or drains.  The provisions vary from company to company, but usually states that water damage is excluded if caused by:

Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment.

This exclusion is talking about “overflows” of water from sewers (like out of toilet bowls) and “backups” from drains (like floor drains and sinks).   The source of the water or sewage may be “off premises” from a plugged public sewer system or caused by water inside the home that is left on or stuck on which overwhelms a drain system that is plugged or restricted.

It is important to mention that almost ALL policies sold by Farallone Pacific Insurance include coverage for sewer or drain water backup. The companies we represent tend to offer policies that are more comprehensive than those sold by our competitors and automatically include coverage. If the company doesn’t include the coverage automatically, we offer our clients the opportunity to purchase coverage via an endorsement.

Water back up from sewers or drains damage can be costly, both the cleanup and repair, so

why does a homeowners policy exclude coverage for sewer or drain water backup?

  1.  Water backup losses are extremely common but preventable with maintenance and preventative measures by the home owner.  Water losses from plugged up toilets and clogged up drains can be prevented or minimized when home owners are observant and promptly repair sticking toilet bowls and clogged, slow running drains.
  2.   Water systems require periodic maintenance or reinvestment by the home owner. Over time, every water drainage system becomes restricted with rust, deposits and accumulated debris. Drain fields become saturated and tree roots interfere with drainage.  Without preventative maintenance, slow running drains won’t handle normal water flow or plug up completely.
  3. Off premises sewage backups can be prevented with the installation of drain backflow preventers that are installed on your drain line.  Unfortunately, many older homes did not have these preventers installed.
  4. During flooding the water table rises and first causes water backup through sewers and drains.  Since “flood” is an excluded coverage, the unendorsed homeowner’s policy has this exclusion.

Flood (Excessive Surface Water, Overflow of a Body of Water, Etc.)

A homeowners policy excludes water damage caused by flooding, more specifically:

 a)  Flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, storm surge or spray from any of these, whether or not driven by wind, including hurricane or similar storm.

 b) Release of water held by a dam, levee, dike or by a water or flood control device or structure.

There are two primary reasons it is necessary to exclude “flood” from a homeowners policy:

  1. Flood losses are often devastating natural disasters that cause more property losses than any individual insurance company can financially withstand.
  1. Most surface water losses can be prevented with proper landscaping of a property that drains water away from structures.   If these losses were covered, property owners would not go to the expense of preventative landscaping for the extreme weather events that occur in long cycles – like every ten, twenty or thirty years.

If your home is located in a floodplain and your community participates in the National Flood Insurance Program (NFIP), you can purchase flood insurance coverage. Your lender may require flood insurance as a condition of your loan.  The NFIP is administered by the Federal Emergency Management Agency (FEMA), which works closely with nearly 90 private insurance companies to offer flood insurance to home owners through authorized property and casualty insurance agents

If you are interested in learning more about water damage coverage, exclusions and limitations or have other insurance related questions, please contact Ramona Johanneson at rjohanneson@fp-ins.com or 415-493-2502.

 

HOA Master Policy Blues – What Happens When Coverage Runs Out

Live in a condo or home in a HOA? Find out in this article what happens when the master HOA policy runs out of coverage after a loss. If you live in a condo or a home and belong to a HOA – what will you do when the master HOA policy doesn’t pay because […]



Live in a condo or home in a HOA? Find out in this article what happens when the master HOA policy runs out of coverage after a loss.

If you live in a condo or a home and belong to a HOA – what will you do when the master HOA policy doesn’t pay because there isn’t enough coverage after a loss? Hopefully you’ll simply submit a claim to your condo owners (HO6) or homeowners (HO3) individual policy and let your own insurance company pay for the special assessment levied against you, using the “loss assessment” coverage in your policy. You’ll pay nothing other than your policy deductible, typically $1,000 or $2,500 and walk away.

But wait, did you know that most – the majority of condo and home policies sold in the industry – include just $1,000 of loss assessment coverage? Sure, if there is a fire and the master HOA policy runs short of coverage because the repair estimates from the contractor were 40% higher than the master policy limits….maybe an assessment might be $10,000 to each owner and you’re on the hook for just $9,000. The reality is that there are many worse losses than this every year involving condos, homes and the common areas surrounding them. The most common serious losses involve injuries/fatalities at the pool, spa, gym, walking/riding trails and tennis courts. A recent settlement from a slip and fall within the association’s common exercise area resulted in a jury awarding $2 million MORE than the limit on the HOA master association liability policy.

The old axiom is true: there’s safety in numbers. For example, if you live in a 100-unit condominium association or master planned home community and your association is forced to levy a special assessment against unit owners because of a $2 million shortfall in the master policy due to the slip and fall loss just mentioned, this $2 million is split 100 ways for a special assessment of $20,000 per owner. Oh, but what if the same thing happened in a 20-unit condominium or master planned home association? The special assessment would be $100,000 per owner.

If you are wondering what you can do to protect yourself against being on the hook for a large special assessment by a condo or home HOA association, the answer is simple. Purchase a condo owners or homeowners policy that includes an “automatic” loss assessment limit of $50,000 (the maximum typically available). The policies sold by or endorsed by Farallone Pacific Insurance Services include this $50,000 limit for condos or homes belonging to a HOA. Once the special assessment is levied, you’ll contact Farallone Pacific and ask that a claim be submitted to your own condo or home policy and $50,000 is going to go a lot further than the standard $1,000 included in most policies.

I encourage you to take a look at your condo or home policy right away if you belong to a HOA, see exactly what the loss assessment coverage limit is. If the policy states $1,000, you should contact me immediately and I will help you to purchase a better policy, likely for the same or less premium than you are paying now. Our agency represents a number of preferred insurance companies and I’m confident that one of our policies will meet or exceed your expectations.

To learn more about loss assessment coverage, please contact Ramona Johanneson at rjohanneson@fp-ins.com or by calling 415-493-2502.

 

Knob and Tube Wiring = No Homeowners Insurance

Knob and Tube wiring was installed in homes up until about 1950. There are a few instances of homes built in the 1960’s and 1970’s with this wiring, but these are the exception. It is now nearly impossible to obtain homeowners insurance if a home has knob and tube wiring. The insurance companies understand the […]



Knob and Tube wiring was installed in homes up until about 1950. There are a few instances of homes built in the 1960’s and 1970’s with this wiring, but these are the exception.

It is now nearly impossible to obtain homeowners insurance if a home has knob and tube wiring. The insurance companies understand the increased risk of fire and the potential for injury or death, based on the limitations of knob and tube wiring.

These limitations are:

  • It is not a grounded system, making it more hazardous than modern wiring. A person may come in contact with water, such as in a kitchen, bathroom, basement, crawlspace or outdoors and electricity and water don’t mix.
  • Two-prong receptacles as opposed to three-pronged. This eliminates the use of many appliances, even small kitchen appliances.
  • Usually restricted to a maximum of 60 amp service. Over the years, homeowners put in higher-rated fuses to increase amps. Given the wire was not intended to carry this additional current, the insulation becomes brittle exposing more wiring or overheating to the point of causing a fire.

Insurers have been updating their guidelines over the years in regards to the type and age of electricity in a home. It used to be that “if” a home was on circuit breakers and not fuses that a preferred insurer would accept knob and tube wiring. More recently, preferred insurers changed their guidelines to say “we don’t care if you have circuit breakers, we don’t want a home with knob and tube wiring”.

This meant that homeowners (those obtaining a new policy either because they were non renewed by their insurance company, had let a policy cancel, were buying insurance for the first time for a house purchase or whatever) were forced to buy insurance from a non preferred company (these are called surplus lines) who charge a significantly higher premium (often 3x’s as much). Lenders accept these policies.

Initially almost all of the non preferred companies (there are really only about four in California…so keep this in mind) were offering a HO3 form homeowners policy for homes with knob and tube wiring. Then, the non preferred companies changed their guidelines to say the same thing as preferred companies, “we don’t care if you have circuit breakers, we don’t want a home with knob and tube wiring”.

Fortunately, one non preferred company of the surplus lines companies, a company called Scottsdale, is still agreeing to insure a home with knob and tube wiring if the amps are 100, if a licensed electrician inspects the wiring and writes a report stating it is safe and if the client (and lender if applicable) will accept a DP1 dwelling fire policy form (this policy form provides a lot less coverage than a homeowners policy form HO3).

What has been a challenge lately is finding an electrician to inspect the wiring and write the favorable report to submit to Scottsdale Insurance Company. Without the 100 amps and the written report, even Scottsdale offering the minimal DP1 dwelling fire policy is not an option.

Knowing that you likely cannot insure a home with knob and tube wiring (well…unless you meet the requirements of Scottsdale, want to pay a great deal for insurance and are fine with the added risk you incur….like self-insuring some of the perils by purchasing a bare bones DP1 policy), then you should consider hiring a licensed electrician to update the electricity in your home. The cost can be considerable, between $8,000 and $20,000 depending upon the square footage and design of the home.

If you are purchasing a home with knob and tube wiring, it will be important that the update to the electricity in the home be completed PRIOR to close of escrow. An insurance company will not agree to insure the home and give you time, say 30 days, to do the updates.  The seller’s lack of maintenance on the house of updating the wiring at some point in time over the years makes their problem (old home wiring is very dangerous problem) your problem. You should not attempt to buy a home that is unsafe to live in and, not being able to buy insurance on it, tells you this really clearly. The insurance companies, even the ones that take almost every other big problem of really old roofs that will likely leak, old heating systems that will likely catch the home on fire or leak toxic fumes into the home and such, are saying no to knob and tube…so big red flag. Too many claims and too severe is a good assumption.

It is unfortunate that some insurance agents are not knowledgeable about knob and tube wiring and believe they can insure a home at close of escrow or otherwise. These agents don’t intentionally mean to mislead homeowners and homebuyers and honestly don’t know the guidelines of the company he or she represents, but the outcome is the same. A policy is written and as soon as the knob and tube wiring is discovered, based on an older home questionnaire, an inspection by the insurance company or in some other way, a notice is sent stating the policy is being cancelled. Suddenly finding out a home is likely uninsurable and $8k or more needs to be spent to have the home’s wiring updated is not a surprise anyone wants.

To learn more about insuring a home with knob and tube wiring, please contact Ramona Johanneson at rjohanneson@fp-ins.com or by calling 415-493-2502.

What You NEVER Expected: The Most Common Causes of Residential Fires Locally

You’ve likely read a lot of articles about what the most common reasons are for fires at a residence. We’ve also read a lot of these articles and it seems most give the same top few reasons: Unattended cooking, outdated or improperly used heating unit/device, careless smoking, forgotten candles, improperly stored hot ashes and so on. Many of […]



You’ve likely read a lot of articles about what the most common reasons are for fires at a residence. We’ve also read a lot of these articles and it seems most give the same top few reasons: Unattended cooking, outdated or improperly used heating unit/device, careless smoking, forgotten candles, improperly stored hot ashes and so on. Many of these articles are
found in national publications.

We have often wondered, and maybe you have too, what are the common causes of fire locally. When a fire investigation is done after fires in Marin, Sonoma and surrounding areas….what caused them?

We are fortunate to have spoken recently to Steve Walton, Fire Investigator of the Larkspur Fire Dept. Steve is extremely knowledgeable and kindly spent hours answering questions about the origin of fires and providing information we feel you might find helpful.

Like boat and barbecues, lawn-mowing season is back. Just remember that under the right conditions, a lawnmower is a fire waiting to happen. Steve states that lawn-mowing fires are
one of the most common local causes of loss. Often the metal blade of the mower will hit a rock, causing sparks that ignite dried grass.

Ideally grass will have been mowed before it turned from green to tall, dry and brown, but the reality is not everyone has a chance to take care of their grass cutting before they should have and this is a problem.

So what do you do if it’s the middle of summer and you find yourself needing to mow? Steve’s best advice makes perfect sense: only cut grass in the morning when temperatures are lower, humidity is higher and on a day with little to no wind. This might mean spreading your mowing project out over a week’s time; it’s possible you’ll only be able to mow from 7am-
8 am each morning and not on consecutive days.

Another common cause of loss is cooking related fires. Common sense is to never leave cooking food unattended…not even for a second. However, distractions can and do happen – especially when there are kids, pets and elderly in the home. The best rule to follow is, never step out of the kitchen away from the stove without turning off the stove. Seconds away from a stove quickly turn into minutes and this is all it takes for a fire to get started.

Fire Investigator Steve stated also that a number of local fires are a result of improper storage of combustible materials. Often fires occur due to residents of apartments using the water heater or furnace area of the apartment as an overflow storage area. When space is limited, it’s tempting to open the small door and place some items next to the water heater or furnace…thinking nothing will happen. These items are typically brooms, mops, plastic bags with items of clothes, shoes, etc.

Unfortunately malfunctions of water heaters and furnaces occur and a spark leads to a fire starting. This fire quickly spreads and the outcome can be a significant loss of property and even life. The same can occur when homeowners place these same items or other combustible items near the water heater or furnace in a home or garage. Steve advises to keep at least 30 inches of clearance – should a malfunction occur, the chances of a fire starting will be minimal.

Lastly, a common cause of fire that Steve mentioned is one that surprised us the most. Steve states that he is beginning to see surge protector and power strips, purchased by consumers in local retail and home improvement stores, which are inferior. They were manufactured in such a way that the poor quality and reliability result in their failure and a fire ignites.

What we took away from the conversation about fires being started, as a result of the malfunction of surge protectors and power strips, is that consumers should be cautious when
making a purchase of these items. The message is that all surge protections and power strips are not created equal. If you are deciding between buying one made in China that feels light
and less sturdy than a more expensive, heavier power surge or power strip…spend the extra money.

We hope you find this article helpful and wish to thank Steve Walton of the Larkspur Fire Department for his time in providing valuable information. Please feel free to contact our office if you have any questions.

For more information about Homeowner’s Insurance, please contact Ramona Johanneson at rjohanneson@fp-ins.com or by calling415-493-2502.

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