The Burst Line, the Bucket, and the Basement Tenant
Priya owns a two-story house insured on an unendorsed HO-3: Coverage A $400,000, Coverage B $40,000, Coverage C $200,000, Coverage D $120,000, and one $2,500 deductible. In March the laundry supply line burst while the family was away; water ran for four days. Repairs: $118,000 to the dwelling, $26,000 to furniture and clothing, $3,800 to her online-resale inventory stored in the den, and $9,000 of rent, meals and groceries for the seven weeks the house was uninhabitable (of which $2,400 was ordinary grocery spending). Her 24-year-old son, who lives in the basement and pays $600 a month, slipped on the wet stairs, broke his wrist, has $6,400 in bills and talks about suing. The adjuster also learns the same line had dripped into a bucket since January.
1. Compute what the policy pays for the property damage and additional living expense, and identify anything that is not payable.
Read the worked answer
Covered, subject to limits:
| Item | Claimed | Payable |
|---|---|---|
| Dwelling repair | $118,000 | $118,000 |
| Furniture/clothing | $26,000 | $26,000 |
| Business inventory (on premises) | $3,800 | $2,500 (special limit) |
| Subtotal A–C | --- | $146,500 |
| Less deductible | --- | ($2,500) |
| Property payment | $144,000 |
The $3,800 of resale inventory is property used primarily for business while on the residence premises, so the special limit (commonly $2,500 on the HO-3) caps it; $1,300 is uninsured - her commercial policy or her own funds absorb it.
Coverage D: Additional living expense pays only the increase over normal living costs. The $2,400 of groceries the family would have bought anyway is not an increase; the remaining $6,600 is payable, and $120,000 of Coverage D is available. The deductible is applied once per occurrence to the A–C settlement, so it is not taken again from D.
Not payable: any part of the loss caused by the drip that had been running since January. The water-damage exclusion bars loss from constant or repeated seepage or leakage over 14 days or more. The abrupt burst is a separate, covered event, but the insured bears the burden of separating pre-burst damage (staining, swollen subfloor) from post-burst damage. Document the plumber's findings and photograph the bucket staining now; if the two cannot be separated, the entire claim is exposed.
2. The son has $6,400 in medical bills and wants to sue. Is there any Section II coverage for his injury?
Read the worked answer
No. He is an insured. The HO-3 defines "insured" to include relatives of the named insured who reside in the household; a 24-year-old son living in the basement qualifies regardless of the rent he pays. (Had he been an unrelated boarder, he would not be an insured.)
Two consequences:
- Coverage E (Personal Liability) excludes bodily injury to "you" or any insured. There is no indemnity for his claim, and because the exclusion is clear on the face of the allegations, the carrier generally has no duty to defend a suit brought solely by him. If the pleadings allege an injury outside the exclusion, the duty to defend revives even though indemnity may not.
- Coverage F (Medical Payments) pays medical expenses to persons who are not insureds, with a narrow carve-back for residence employees. He does not qualify.
His bills go to his own health plan, or to medical payments coverage on any auto policy involved. Do not pay the claim as a goodwill gesture without a reservation of rights - a voluntary payment can waive the exclusion later.
3. Priya says she knew about the drip since January and did nothing. How does that affect the claim, and what should the adjuster do?
Read the worked answer
Negligence in maintaining the plumbing is not a coverage defense by itself - the HO-3 insures accidental discharge even where the insured was careless, and there is no general "failure to maintain" exclusion.
The defense comes from the water-damage exclusion for constant or repeated seepage or leakage over a period of 14 days or more, including the resulting damage. The adjuster's job is causation, not blame:
- Date the seepage. Receipts, photos, the bucket, the plumber's report, and staining that shows progressive layers all establish the timeline.
- Damage that occurred during the 14-day-plus seepage period is excluded. The sudden burst is a distinct occurrence and its damage is covered.
- Because the insured had notice, expect a dispute over how much damage predates the burst. Absent proof, the carrier may reasonably deny the whole claim - which is exactly why the investigation must be documented now rather than reconstructed after suit.
The Protection of Property duty (mitigation) is separate: her failure to shut the line off may increase the post-burst damage, but it does not void coverage for the burst. Non-renewal or a plumbing-inspection requirement at renewal is a sensible underwriting response - not a claim denial.