Burst Pipe, Mold Sublimit, and Business Income
A Bozeman bakery has a businessowners policy: building $600,000, business income $200,000 with a 72-hour waiting period, extra expense $25,000, mold sublimit $10,000, and a $5,000 deductible. On Friday, February 2, a supply line to a proofing cabinet bursts overnight. The owner discovers two inches of water Saturday morning, calls a plumber, and mops up. The adjuster is assigned Monday and tells the owner to dry it out and send receipts. No one tests for moisture. On February 12, the owner reports a musty odor and visible mold on drywall. A remediation contractor later bills $28,000 for mold and $9,000 for water extraction and drying. The bakery closed for 11 days, then reopened at 60% capacity for 14 days. The owner had a prior roof leak in 2022 that was repaired. The policy excludes mold unless resulting from a covered water loss, with a $10,000 sublimit; it also excludes repeated seepage.
1. Analyze coverage for the mold remediation, the extraction and drying, and the business income loss, including the deductible and sublimits.
Read the worked answer
The burst supply line is a covered water loss, so the $9,000 extraction and drying is generally payable as mitigation, subject to the $5,000 deductible. The mold is trickier. The policy excludes mold unless it results from a covered water loss, and then caps it at $10,000. The key factual question is whether the mold resulted from the February 2 burst pipe or from the prior roof leak or repeated seepage. If the burst pipe was the efficient cause and the mold appeared because drying was delayed, the $10,000 sublimit applies, not the full $28,000. The adjuster should not pay $28,000 just because remediation was performed. The prior 2022 roof leak matters only if it contributed to this loss; a repaired, unrelated leak does not defeat coverage. Business income has a 72-hour waiting period, so the 11-day closure is measured after the waiting period, and the 14 days at 60% capacity require a calculation of lost net income, not gross sales. Extra expense may cover temporary equipment or additional rent, but not amounts already in business income. The deductible applies to the loss, and the mold sublimit is in addition to the deductible.
2. What investigation steps should the adjuster take and what documentation is needed to support a fair decision?
Read the worked answer
The adjuster should obtain moisture mapping and drying logs, photographs before and after remediation, the plumber's invoice and cause statement, the remediation contractor's daily scope, and the prior roof-leak repair records. A causation report from a qualified consultant may be necessary to separate burst-pipe water from old roof leakage. The adjuster should also get the bakery's daily sales, payroll, fixed expenses, and reopening records to calculate business income, and should verify that the insured mitigated promptly. A reservation-of-rights letter should explain the mold sublimit and the repeated-seepage exclusion without denying the whole claim. The file should show why extraction and drying were reasonable, how the mold cap was applied, and how the 72-hour waiting period was calculated. If the insured disagrees, the adjuster should provide the policy language and a written explanation. The goal is a documented, cause-based decision, not a generic mold-is-limited letter.