Commercial Property Insurance and water damage

By: Mary Thompson, Capstone Brokerage President, May 26, 2016

Water is something we all need to survive; it is an intricate part of life. What happens when water ends up in the wrong place? Well, it can be destructive and a costly force to be reckoned with. Water can destroy a company’s building and the contents inside. Not to mention if “water” comes up from the wrong place it can create a hazmat situation.


What business needs insurance for water damage?

Simply put almost all businesses should have water damage coverage. Why you might ask? If your business has an HVAC system there is a threat of water damage. If your business has a bathroom facility there is a huge risk of water damage. A malfunctioning toilet or sink can quickly become a problematic water and hazmat issue. Businesses with a physical location can also be damaged by water from storms or floods. Very few businesses are not susceptible to range losses caused directly or indirectly by water. Insurance coverage plays a huge role in protecting a business from water damage. There are many insurance policies (and riders and endorsements) available to cover these risks and protect your business. It surprises me often when a business does not want water damage covered either included or added to the Commercial Property Policy already in place.

Commercial Property Insurance and Coverage for Water Damage

The rules pertaining water damage coverage are not written in stone when it comes to property insurance coverage. Some policies will include only certain kinds of water damage; some may not cover any water damage at all. It is important to understand what the policy cover to ensure you are protected. When placing your insurance with a carrier or receiving quotes for coverage be sure to read the policies cause of loss portion, to see if water damage is covered and at what level. There are options to add endorsements or riders to the policy to include more water damage coverage if the business feels the need to.

The 2 most common water damages risks:

1. Busting pipes: Many businesses especially those who are in regions of the country where extreme cold weather is present are a risk for bursting pipes. Now pipes are not visible making the damaged caused by busting pipes often hidden and can go un noticed for a longer duration. This in turn can create a much bigger issue then the water itself, think mold. Many commercial property policies will cover at minimum bursting pipes.

2. Gradual Leaks: This is when a pipe or hose slowly leaks water. Possible concerns for gradual leaks, appliances, HVAC units, fire sprinkler systems, plumbing both underground, and visible. Many commercial property policies will not cover losses caused by water leakage or seepage that is gradual, slow, intermittent, or constant. In these cases, the insurance company may point out that they insure against damage that is sudden and accidental and not damage resulting from owner’s negligence or the normal wear and tear of materials. The property insurance coverage probably will not apply if the damage could have been prevented by regular maintenance and preventive measures.

There are often listed exclusions on a commercial property insurance policy when it comes to water damage. For example, the policy will usually list specific situations when there will not be coverage. The most common exclusion is flood exclusion.

Recently at Capstone we learned water damage is not something fun to deal with. Our restroom started to back up and overflow which resulted in damage that was more than you would think. It happened over the weekend leaving carpet, tile, walls and cabinets soaking in waste. We had to replace the carpet, padding, drywall, plumbing, and have a team come into make sure the area was dry and sanitized properly. It is smart to check your Commercial Property Insurance policy to see what water damage coverage you have. It never hurts to add more coverage to better protect your business.