Supply Line Failure: Water, Mold, and the Seepage Exclusion
An HO-3 policy covers a two-story home in Reno with dwelling coverage of $450,000, a $2,000 all-perils deductible, and a mold endorsement with a $10,000 sublimit. The insured left for a weekend trip. A braided supply line to an upstairs toilet failed, and water ran for about 36 hours before a neighbor noticed water flowing from the garage. The insured filed promptly. The mitigation vendor billed $8,500. A restoration contractor estimates $62,000 replacement cost value: $41,000 for water-damaged drywall, hardwood, cabinets, and insulation; $14,000 for mold remediation in the ceiling cavity; and $7,000 for general contractor overhead and profit. Actual cash value before mold is $41,000. The field representative notes a faint stain on the ceiling below the bathroom and writes 'long-term seepage - deny.' The insured says the stain came from a small leak repaired two years earlier and provides the repair invoice. The mold endorsement excludes mold caused by 'constant or repeated seepage' over 14 days or more.
1. Analyze coverage for the water damage and mold, including how the deductible and mold sublimit apply.
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The loss is a sudden and accidental discharge from a plumbing supply line, which is generally covered under an HO-3. The field representative's 'long-term seepage - deny' note is not enough: the mold endorsement excludes mold caused by constant or repeated seepage over 14 days or more, and the known evidence is a faint stain plus a two-year-old repaired leak. The insured has provided an invoice for the prior repair. The adjuster must determine whether the current water ran about 36 hours (sudden) or whether the stain reflects a continuing leak. If the cause is the failed supply line, the water damage is covered. The $2,000 deductible applies to the covered loss. The mold sublimit is $10,000, so of the $14,000 mold remediation, no more than $10,000 is payable, subject to the policy's sublimit wording. The $7,000 overhead and profit is part of the covered repair if reasonable and customary. Do not apply the deductible twice if the policy applies one deductible per occurrence.
2. What investigative steps should you take before making a coverage decision, and how should you document the file?
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Obtain a plumbing report confirming the braided line failed and when; moisture readings and drying logs; photos of the stain and the prior repair; the insured's two-year-old repair invoice; the mitigation invoice and daily logs; and a contractor's scope separating water damage, mold, and overhead/profit. Ask the contractor whether the mold could have developed in 36 hours or requires longer moisture. Consider an engineer or industrial hygienist if the cause or duration is disputed. Interview the neighbor who reported the water. Preserve the failed line. Send a status letter explaining that coverage is being investigated and that mold is subject to a $10,000 sublimit. Document each step, the basis for accepting or rejecting the seepage exclusion, and the deductible/sublimit calculation. If denying any part, cite the specific policy language and give the insured the opportunity to submit the prior repair invoice and any other evidence.