The Shower Pan That Leaked for Eight Months
Perrin's home is insured on an HO-3 with Coverage A of $450,000, Coverage B of $45,000, a $2,500 deductible per occurrence, a $10,000 aggregate sublimit for mold remediation, and a $1,500 sublimit for water backup. Over roughly eight months a leaking shower pan let water seep behind the tile. Perrin noticed a small stain in October and did nothing. In June the shower floor collapsed; opening the wall revealed $26,000 of rotted framing and $16,000 of mold remediation needed. Three weeks later, while the bathroom was still torn open, a supply line in the same room burst and caused $21,000 of damage to the first floor. The town will require $12,000 in code upgrades (new drain pan, pressure-treated framing) as a condition of the repair permit. The policy has no ordinance or law coverage.
1. Allocate each loss component - rot, mold, and the burst-supply-line damage - to covered, excluded, or sublimited, and state what Perrin collects for each.
Read the worked answer
Component 1 - $26,000 rot from the shower pan. Excluded. The policy excludes constant or repeated seepage over 14 days or more. Eight months of seepage fits squarely. Rot and deterioration are separately excluded as well. Coverage follows the excluded cause, so the rot is out.
Component 2 - $16,000 mold. Excluded in this instance. The mold sublimit does not create coverage; it caps coverage that already exists. Here the mold resulted from the long-term seepage, which is excluded, so the sublimit never engages and Perrin recovers nothing for it. Had the mold come from the burst line, the $10,000 sublimit would apply.
Component 3 - $21,000 from the burst supply line. Covered. Accidental discharge from a plumbing system is a covered peril. The loss is sudden and the damage is not excluded deterioration.
$21,000 - $2,500 deductible = $18,500 payable.
Totals: Perrin collects $18,500 of a $63,000 total event cost. The water-backup sublimit is irrelevant - nothing here backed up through a drain.
2. The town's $12,000 code upgrade will be denied. Explain why, and what Perrin and the producer should do about it.
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Why it is denied. Ordinarily, the cost of complying with a building ordinance is not "direct physical loss" - the property is repaired to a better standard than it was, and the policy measures loss, not improvement. Insurers handle this with an Ordinance or Law endorsement. This policy has none, so the enforcement cost is uninsured even though it arises directly from a covered repair.
Why it is worse here than it looks. The upgrade is tied to a repair the policy is already paying for (the burst line's aftermath). An insured naturally argues it is part of the repair; the carrier will argue the base policy responds only to the physical damage, and the enforcement cost is a separate exposure it never priced.
What the producer should do now.
- Tell Perrin plainly, before the contractor starts, that the $12,000 is out of pocket.
- Quote an Ordinance or Law endorsement at the next renewal - typically a percentage of Coverage A, covering undamaged portions and demolition as well as the code upgrade itself.
- Check whether the mortgagee or a local program requires it.
What Perrin should do. Get the permit requirements in writing and keep the contractor's itemization. If the town only requires the upgrade for the rebuilt portion, the exposure is smaller - do not assume the full $12,000 applies.
3. How should the two events be reported - one claim or two? Does Perrin's October knowledge of the stain change the analysis, and what advice follows?
Read the worked answer
Two occurrences, two deductibles - but only one bites.
- The seepage event and the burst-line event are separate in cause, time, and location of damage. Report them separately.
- A deductible applies to each occurrence, but the seepage claim pays nothing, so no deductible is absorbed there. Perrin absorbs one $2,500 deductible.
Why separate reporting matters. Lumping them together invites the adjuster to treat the whole bathroom as one continuous water event, which pulls the covered burst-line damage into the seepage exclusion. Keep them documented as distinct, with separate dates and causes.
The October stain. Perrin knew of the leak and did nothing. That triggers the duty to mitigate - a carrier may deny the portion of loss caused by failure to protect the property - and it supports the exclusion directly. It is also a disclosure item: if the insured does not volunteer the October observation and the adjuster learns it from the contractor, the file becomes a misrepresentation question, which is far worse than a coverage denial.
Advice to Perrin. Report both in writing, describe the October stain honestly, keep the failed tile and framing photos, get the plumber's causation letter for the burst line, and expect underwriting scrutiny at renewal. Mitigation from here forward is part of the claim file.