Water always makes a mess, so nobody wants it inside his or her place of business regardless of how it gets there.
While many business owners assume that property damage caused by water is automatically covered by their insurance, there are a number of exclusions related to water that are standard in most property policies.
Recognizing that in some cases water can cause more damage than fire, it is important that this exposure is properly covered.
“There may be an artificial level of comfort that water damage is always covered, which isn’t the case at all,” says Chris Zito, president of Zito Insurance Agency, Inc. “Usually, it’s discovered after a business owner suffers a large water claim and finds out he or she only has a small amount of coverage, or none at all. The first reaction is typically to blame the insurance company, however it really is a result of the coverage not being structured to adequately address the business’ risk.”
Smart Business spoke with Zito about being aware that your business may not have the protection it needs, when it comes to water damage.
What are examples of water damage that isn’t automatically covered in most policies?
While many people understand that flood often isn’t covered, the flood exclusion is broader than the overflow of a river or lake that most people associate with a flood. The typical exclusion reads: ‘the partial or complete inundation of normally dry land areas due to:
- The unusual or rapid accumulation or runoff of rain or surface waters from any source.
- Waves and tidal waters.
- Water from rivers, ponds, lakes, streams or any other body of water that is not contained in its natural or man-made boundary.’
In addition, other sources of water excluded from coverage are:
- Floor and roof drains.
- Sewers, sump pumps or related equipment and septic systems.
- Seepage through foundations, walls, floors or paved surfaces.
- Basements, doors, windows or other openings.
- Repeated or continuous seepage of water or the presence of humidity, moisture or vapor that occurs over a period of time.
- Water from plumbing, heating, air conditioning caused by freezing (if heat was not maintained or shut off and drained from the system).
As you can see, water damage can originate from inside or outside a building from virtually every direction, putting assets such as equipment, furniture, production equipment, inventory, floors and walls at risk.
How can business owners do something about these exposures?
Whether you have an HVAC system in your office building, machinery or appliances that incorporate water, or something as simple as a malfunctioning toilet or sink, almost every type of business is susceptible to a range of losses caused directly or indirectly by water. Fortunately, in many cases, coverage for many of the noted exclusions can be purchased by endorsement or through a separate policy. That’s why it is important to work with an agent or broker who understands your individual exposure to water damage and has structured the coverage accordingly.
It’s your agent’s job to know what is included and excluded in your policy — and then ask pertinent questions about your business. For example, do you have pallets of inventory? Are they on the floor? Are they up on shelves? Are they wrapped in plastic? Are they susceptible to a roof drain breaking? Is there electronic equipment below, or is it just boxes that wouldn’t be damaged by the water?
The degree of exposure varies by company, so the coverage has got to be tailored to your specific needs. It isn’t automatic but, for the most part, these things can be rectified at a relatively low cost, as long as they are identified by an agent doing the right things.
Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.