Late-Reported Basement Water Loss With Missing Evidence
An HO-3 policy covers a 1960 ranch home with $250,000 dwelling coverage, a $1,000 deductible, and a $10,000 fungi sublimit. On April 2, the insured noticed water in the finished basement and called a plumber, who replaced a corroded supply line behind the washer. The insured threw out wet carpet and 3 feet of drywall, ran fans for two days, and did not photograph anything before removal. She reported the claim on May 19-47 days later-after a contractor told her the repairs might exceed $25,000. The adjuster sees visible mold on framing and a handwritten $2,800 invoice from a handyman for “water cleanup.” The insured demands $28,400, including $14,000 for mold remediation, and says she “didn’t know she had to report it right away.” The policy requires prompt notice and a signed proof of loss. The adjuster suspects long-term seepage but has no definitive evidence.
1. Identify the coverage issues the adjuster must resolve before payment and explain how each affects the claim.
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Coverage issues:
- Late notice. The policy requires prompt notice. A 47-day delay is a potential defense only if the insurer was prejudiced. The adjuster should ask what the insured knew, when, and whether the delay prevented inspection. Missing carpet and drywall may create prejudice, but that is a factual question.
- Cause of loss. A sudden supply-line failure is generally covered; long-term seepage or repeated leakage is usually excluded. Corrosion alone does not prove long-term seepage, but the adjuster should obtain the plumber's report and photos.
- Mold. The $10,000 fungi sublimit caps mold remediation if the water damage is covered. If the water loss is excluded, mold is not covered separately.
- Documentation. The insured removed evidence before inspection. The adjuster can still use the handyman invoice, plumber report, and remaining damage, but should not pay unsupported amounts.
- Proof of loss. The policy requires a signed proof of loss; refusal is a breach, but the adjuster should give a clear form and deadline before denying.
2. The insured refuses to sign a proof of loss and demands immediate payment. How should the adjuster proceed?
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The adjuster should not pay under protest or deny solely because the proof of loss is unsigned. Send a written reservation of rights that lists late notice, cause of loss, mold sublimit, and documentation. Provide the proof-of-loss form, explain what must be documented, and set a reasonable deadline. Continue investigating in the meantime: obtain the plumber's report, handyman records, any photos, and a mold protocol. If the insured refuses without explanation, the insurer may deny for failure to cooperate, but only after documenting prejudice and giving a cure opportunity. In Michigan, a late-notice denial generally requires actual prejudice, so the adjuster should not rely on timing alone. Keep the insured informed to reduce bad-faith risk.
3. What should the adjuster do about the missing carpet and drywall and the handyman invoice?
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The missing carpet and drywall are a serious evidence problem. The adjuster should:
- Obtain the handyman's invoice, payment records, and any photos from the insured or contractor.
- Ask the plumber to confirm the failed line and date.
- Inspect remaining framing and subfloor to estimate affected area.
- Compare the claimed 3-foot flood cut to the remaining water lines.
- Consider an examination under oath if the amount or cause remains unclear.
The handyman invoice is evidence but not proof of covered damage. Pay only for removal and repairs that are documented or reasonably inferable from the remaining damage. Do not accuse the insured of fraud; explain that the policy requires proof. If the insured cannot prove the pre-loss condition, the adjuster may make a reasonable estimate and document the basis.