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2008 Ice Storm Damage and Your Insurance

In the wake of last week's ice storm, there have been many questions about what is covered and what is not covered due to the power failure.  Irene Morrill, CPCU, CIC, ARM, CRM, LIA, CPIW, Vice President of Technical Affairs at MAIA has written a fantastic article to help clear things up, which I have included below.  This is a long article but well worth reading.

December 2008

Well ... you people in SOUTHERN Massachusetts are "wicked lucky." Many of us in the great North and West of Massachusetts ... not so. I now have great compassion for those who survived the ice storm in Maine a few years ago ... I now can commiserate!

My husband talked me into a "full house" generator earlier this year ... and I am SOOOOO thankful. I guess I should listen to him more and argue less ...

I have been without "real" power since Thursday night sometime. I also am without COMCAST, which is horrible. No Internet ... NO telephone ... NO TV ... and that is the order of importance as far as I am concerned.

So, I am a little on "edge" this fine Monday morning and when I got a particular call from an agent ... it sent me for a loop. It wasn't the agent that upset me ... it was what the agent was told by two of his insurance companies. Two company representatives told him that frozen pipes caused by an off premises power failure were NOT covered under the homeowners policy. My response ... and what planet did these people come from. Obviously not the same insurance planet that I have lived in for almost 34 years (that is the length of time I have been IN insurance ... not my age ... unfortunately).

SO ... let's look at the ISO policies ... personal and commercial for coverage ... or not.

ISO HO-91 or HO-2000:

Off premises power failure IS found under the Section I General Exclusions that start with very ominous language: The HO-91 states:

1. 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.

The ISO HO-2000 states:

A. 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.

The actual exclusion reads the SAME in both the HO-91 as amended by the HO 01 20
(10/99 edition) and the HO-2000

4. Power Failure
Power Failure means the failure of power or other utility service if the failure takes place off the"residence premises." But if the failure results in a loss, from a Peril Insured Against on the"residence premises," we will pay for the loss caused by that peril.

SO ... we don't want to cover loss due to off premises power failure UNLESS a "normally covered loss" occurs. Let's see ... whether you sold the HO 2, 3, 4,6 ... Frozen pipes is "normally covered."

The exclusion under the HO-3 HO-2000 states for Coverage A and B states:

SECTION I - PERILS INSURED AGAINST

A. Coverage A - Dwelling And Coverage B - Other Structures

2. We do not insure, however, for loss:

c. Caused by:

(1) Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This provision does not apply if you have used reasonable care to:

(a) Maintain heat in the building; or
(b) Shut off the water supply and drain all systems and appliances of water.

However, if the building is protected by an automatic fire protective sprinkler system, you must use reasonable care to continue the water supply and maintain heat in the building for coverage to apply.

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, downspout or similar fixtures or equipment;

The Exclusion under the HO-3 HO-91 for Coverage A and B states:

a. Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This exclusion applies only while the dwelling is vacant, unoccupied or being constructed, unless you have used reasonable care to:

(1) Maintain heat in the building; or
(2) Shut off the water supply and drain the system and appliances of water;

What is "reasonable" care ... or not ...
The fact that an ice storm caused a natural disaster and power lines were down had nothing to do with the insured. The insured had heat on to make sure that pipes didn't freeze and then a situation BEYOND their control caused the lack of heat ... and potential and possible pipe freezing.

Being "unreasonable" is more like turning your heat OFF while on vacation in February to save a few extra dollars. An insured who tries to conserve fuel by not turning heat ON when the temperature is 32 or below could be construed as "unreasonable" under the HO-2000 program.

Is there coverage under a Named Peril HO form?
YES!!! If one has the HO-2 or unendorsed HO-6 .... Named perils ... frozen pipes IS a named peril as long as one uses reasonable care to maintain heat.

The HO-2000 named peril reads as:

14. Freezing

a. This peril means freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance but only if you have used reasonable care to:

(1) Maintain heat in the building; or
(2) Shut off the water supply and drain all systems and appliances of water.

However, if the building is protected by an automatic fire protective sprinkler system, you must use reasonable care to continue the water supply and maintain heat in the "residence premises" for coverage to apply.

b. 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.

What about sump pump loss since no power to keep the sump pump going ...
Well, in this case ...if the insured does NOT have the HO 04 95 Water Back up And Sump Discharge and Overflow endorsement then there should not be any coverage. Remember the key to coverage for "off premises power failure" is a RESULTING COVERED loss. Sump pump overflow is NOT a covered loss.

The following is ALSO found under the Section I exclusions ...

3. Water Damage
Water Damage means:

b. 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; or caused by or resulting from human or animal forces or any act of nature.

So ... one needs the Water Back UP and Sump Discharge endorsement to be covered. It's about time to re-address this endorsement because the ISO version only gives $5,000 of coverage ... and this has not changed since 1998 when it was first created!

What about those people who lost power and rented hotel rooms, will the HO policy pay for THIS expense?
Well, that could be a problem. Under Coverage D Loss of Use ... a covered loss is required ... making your "residence premises" untenable. Off premises power failure itself is NOT a covered loss. If the wires were ripped from their roof connection and damage occurred ... then Additional Living Expense under Coverage D could apply. Or, if the frozen pipes result causing the "residence premises" to be untenable then Coverage D could apply.

The HO-2000 states (and the HO-91 is similar):

D. Coverage D - Loss Of Use
The limit of liability for Coverage D is the total limit for the coverages in 1. Additional Living Expense, 2. Fair Rental Value and 3. Civil Authority Prohibits Use below.

1. Additional Living Expense
If a loss covered under Section I makes that part of the "residence premises" where you reside not fit to live in, we cover any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living.

Payment will be for the shortest time required to repair or replace the damage or, if you permanently relocate, the shortest time required for your household to settle elsewhere.

But parts of MA and NH were considered Federal Disaster areas!
SO? Are you trying to access the Civil Authority section under Coverage D? I don't think it applies, either.

3. Civil Authority Prohibits Use
If a civil authority prohibits you from use of the "residence premises" as a result of direct damage to neighboring premises by a Peril Insured Against, we cover the loss as provided in
1. Additional Living Expense and 2. Fair Rental Value above for no more than two weeks.

First, being declared a federal disaster area is not the same as MAKING you leave. And, the authorities making you leave has to be due to DIRECT damage to NEIGHBORING premises due to a"peril insured against". So ... again, off premises power failure doesn't fit the bill.

What your insured MIGHT be able to do is contact FEMA regarding financial aid in those areas that WERE considered federal disaster areas.

What about commercial lines policies ... is there coverage?
YES!!!

ISO CP or BOP language ...
The CP 10 30 Special form has a similar exclusion to the HO program. The following policy language applies to building and contents coverage forms

B. Exclusions

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

Utility Services
The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises. Failure includes lack of sufficient capacity and reduction in supply.

But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

This exclusion does not apply to the Business Income coverage or to Extra Expense coverage. Instead, the Special Exclusion in Paragraph B.4.a.(1) applies to these coverages.

This policy exclusion language applies to Business Income Coverage Forms

4. Special Exclusions
The following provisions apply only to the specified Coverage Forms.

a. Business Income (And Extra Expense) Coverage Form, Business Income
(Without Extra Expense) Coverage Form, Or Extra Expense Coverage Form

We will not pay for:

(1) Any loss caused directly or indirectly by the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs outside of a covered building. Failure includes lack of sufficient capacity and reduction in supply.

But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss resulting from that Covered Cause of Loss.

The newest 2008 CP forms ...
ISO's newest revision is revised for the business income exclusion. It will now read the same way as the discussion for building and contents. So again, there WOULD be coverage.

Frozen pipes IS a "covered cause of loss"
Like the HO forms ... there is a discussion of frozen pipes but the exclusion only applies when the insured did not take reasonable care to maintain heat.

g. Water, other liquids, powder or molten material that leaks or flows from plumbing, heating, air conditioning or other equipment (except fire protective systems) caused by or resulting from freezing, unless:

(1) You do your best to maintain heat in the building or structure; or
(2) You drain the equipment and shut off the supply if the heat is not maintained.

The ISO BOP BP 00 03 ...
Works the same way. It is an exclusion ...that does NOT apply if the insured takes reasonable care to maintain heat.

What about sump overflow problems in commercial lines?
Same issue as in personal lines ... it is a "general exclusion" regardless of cause ...and requires an endorsement to buy back coverage.

What about loss of business income because there was no power, is that covered?
Sorry, no cigar. Both the ISO CP 00 30 Business Income Form (with Extra Expense) as well as the Business Income coverage in the ISO BOP states:

We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 100 feet of the site at which the described premises are located.

Until the pipes freeze causing a business shutdown there is no DIRECT PHYSICAL loss to property. When the DIRECT PHYSICAL LOSS happens ...it must be a "covered cause of loss". 

AAIS forms ...
I don't have the AAIS forms handy ... but from what I remember ... those forms WOULD cover pipes freezing due to unavoidable circumstances.

Companies who write their own ...
Who knows ...but if they want ANY business at all ... this SHOULD be covered ... just look at the language. If it reads like ISO ...t hen there is coverage.

SHAME, SHAME, SHAME ...
on any company that would consider denying frozen pipe claims due to off premises power failure ... the policy language does NOT support such an absurd denial.

After being without power for a substantial amount of days ... is NOT the time to misinform your clients ... and misread the policy!!

* * * * *

As usual, if I can be of service to you, please call me, Irene Morrill, Vice President of Technical Affairs at 800.870.7091 or ... BETTER YET ... email me at imorrill@massagent.com. You can fax me at 508.634.2929 (but if you fax me, PLEASE email or call me to TELL me that you have faxed me - I am NOT in the office every day).

This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permission of the author is not permitted.

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