Property Insurance Coverage Exclusion – Water

This post isn’t terribly exciting, but true. So I must share.

A client called me on Monday, a pizza parlor, about some troubles they have been dealing with over the past two months. A foul sewage-like odor had been permeating throughout the kitchen area of the restaurant and sometimes even the seating area. Nobody had an idea of where it was coming from. There had been no sewage back-ups or signs of plumbing problems or anything. The “porta-potty” like odor started to become a significant problem for the restaurant as it grew stronger and started pushing customers away. Finally, our client called the building owner to come check it out (this is another story).

It turns out there was a small pipe underground in the kitchen slowly dripping over the course of a month that was saturating the ground and walls and pushing through the vents which affected the entire two-story building with a foul odor. Plumbers had to jack-hammer the concrete floor in the kitchen to get to the leaky pipe and patch it. Then put it all back together. The cost was paid out-of-pocket by our client who is NOT the building owner, nor responsible for this loss in his lease. Now he’s dealing with the building owner on trying to collect on the loss. I visited last night and it still smells like crap in there which is not good for business. In fact, business has dropped a bit which has our client stressing!

From an insurance standpoint, it should be noted that a loss like this is NOT typically covered on a property insurance policy. If you review a property insurance special policy form, you’ll find the following language under the list of exclusions:


  1. Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not
  2. Mudslide or mudflow
  3. Water that backs up or overflows from a sewer, drain, or sump; or
  4. Water under the ground surface pressing on, or flowing or seeping through (a)  foundations, walls, floors or paved surfaces; (b) basements, whether paved or not; (c) doors, windows, or other openings

*If water results in fire, explosion, or sprinkler leakage, carriers will typically pay for the loss or damage caused by that fire, explosion, or sprinkler leakage.

It remains to be seen how this whole ordeal will be play out between our client and his landlord, but a good rule of thumb to understand about water damage claims is: if water rises from the ground up and causes property damage, it’s generally excluded from coverage. However there are endorsements such as “sewer drain and backup” that can be added on Businessowners policies to give coverage back in some scenarios. Be sure to clarify with your agent/broker about your property insurance policy.


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About Jimmy Kinmartin - Business Insurance & Risk Management

Jimmy is a California licensed Property & Casualty AND Accident & Health insurance agent working at the Olson Duncan Insurance brokerage based in Torrance and Irvine, CA. He grew up in Fullerton, CA and graduated from Servite High School in Anaheim and Loyola Marymount University in Los Angeles and currently lives in Tustin, CA. Have questions? Just ask! Or, follow Jim on Twitter at @JimKinmartin

2 responses to “Property Insurance Coverage Exclusion – Water”

  1. Tim Dodge says :

    Thanks for sharing this story. This situation is particularly difficult because a National Flood Insurance Program policy would not cover the loss either, because no flood (as the policy defines that term) occurred. I hope your client is successful in collecting from the landlord, though I suspect the reimbursement won’t make up for the drop in business.

    Tim Dodge
    Director of Research and Media Relations
    Independent Insurance Agents & Brokers of New York, Inc.

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