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Condo owner denied insurance coverage for unit damage caused by sewer pipe burst in building

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Q: I live in a highrise condo building. Recently, a sewer pipe burst outside my condo between units. The water caused a substantial amount of water damage to my kitchen and the floors in my unit.

The condominium association has been in the process of repairing the pipe and fixing the walls but they won’t repair my kitchen or my floors. I put in a claim with my insurance company, but they have denied coverage. They claim I didn’t purchase a backup sewer endorsement coverage to my policy. My insurance agent never offered me that endorsement coverage. What should I do?

A: It’s an interesting question. And, quite unfortunate that your insurance agent didn’t offer you an endorsement to your policy, which would have covered you on the damage you sustained. But more on that later.

Let’s start with how condo buildings look at insurance: yours and theirs. When you live in a condo building, the association’s governing documents usually provide that the association will not be responsible for any damage to the interior of the individual units nor for any of the owners’ contents in those units. It is precisely for this reason that associations generally will require homeowners to carry a homeowners insurance policy that will protect them from damage and liability claims if they cause damage to other units.

If you live in Florida, as an example, you are keenly aware that you can have water damage that comes from storms like a hurricane. You also know that water can come in through the windows or from other units. So, homeowners in Florida make sure that their condo insurance coverage covers them if water comes into the unit during a storm. They also know that if they don’t have that insurance coverage, they’ll have to pay for the damage out of their own pockets.

Homeowners who live in cold-weather climates worry about water from water pipes that freeze, burst, break or from sewer lines that back up and from roof, window or wall leaks. When you purchase or renew your condominium insurance policy, you’ll usually buy a policy that covers you from the drywall in — meaning that your insurance should cover any damage to your unit within the perimeter walls of your unit.

Your condominium insurance needs to cover you for the bathrooms, floors, plumbing, electrical and heating/cooling fixtures in your unit, along with kitchen and laundry appliances, kitchen and bath cabinets and all other improvements within your unit. Basically, you have insurance for everything inside your unit and the association is responsible for the structure of the building outside of your unit.

It looks like your insurance coverage had a gap in it. Many insurance companies carve out certain issues such as floods, earthquakes and war from their insurance coverage. But frequently, they also exclude coverage for certain types of issues, such as sewer backups, sump pump problems and other similar water issues.

When you purchase your insurance coverage, your insurance agent should have offered you all of the other protections. You could have then asked questions about the limits of these coverages and made a decision whether to add them to your policy. We’re sorry to hear that you were never even offered the coverage. While we don’t know what your policy terms provide, we suspect that your insurance carrier denied your coverage because you didn’t have backup sewer coverage.

As a buyer making an offer for a condo in a high rise building, you might not have realized that a sewer backup could be a problem. That’s understandable. We usually think of backup sewers in conjunction with basements that flood with sewage due to a storm or a break. But there’s also water that rushes into a property through an open sewer line, and that can happen in a condo. For example, a waste stack backs up with a blockage and water rushes down the stock, hits that blockage and finds a way out through a toilet, sink or shower drain.

Your policy may have excluded that sort of sewer coverage. But, you mentioned that the leak came through your walls due to a burst pipe. While it may have been a sewer pipe, it was still a burst pipe. That’s something typically covered by insurance. We wonder if your insurance company is trying to get out of paying a claim it otherwise might have covered under the policy you already have.

You should consult with an attorney who specializes in insurance claims. That attorney might have some insight into whether the insurance company was correct in denying your claim or is trying to use the situation to claim that you had no coverage due to your lack of buying a backup sewer endorsement to your policy.

To our readers: Insurance coverage is increasingly expensive and complicated. Talk to your insurance agent. Make sure you understand what coverage you have and what additional coverages are available when you buy homeowner’s insurance. It’s easy to over-buy and under-buy coverage.

For example, many homeowners buy insurance coverage in the amount of the loan they obtained when they purchased the home. But if the home burns down, the insurance company will pay out the policy limit, which may be sufficient to pay off the lender but not enough to rebuild the home. Other homeowners will match their coverage to the value of their single family home in today’s market. But that price point includes the land, which will still be there, even if your home is destroyed.

You may buy an endorsement to cover you for backed up sewers or failure of sump pumps in a basement, but not know that the insurance company limits the amount of damage they will cover to $5,000. If you have lots of water in your basement, the damage could be much higher than your coverage. So, ask about the limits of each coverage you’re adding to the policy.

Lastly, make sure you understand the limit of your housing expense reimbursement. These days, it could take far longer than a year to get a home rebuilt after a fire or other casualty. But many policies limit reimbursement for housing expenses to one year. So, if you need a place to live while you still pay all of the expenses of the mortgage, insurance and taxes on the home that sustained the damage, understand how long your insurance company will cover your temporary housing expenses.

(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)

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