The Failed Supply Line, the Mold Sublimit and the Town Inspector
The Marchettis insure their 1960 colonial on an HO-3: Coverage A $400,000, a $2,000 all-perils deductible, a mold remediation sublimit of $10,000 (aggregate per policy period), and ordinance-or-law coverage equal to 10% of Coverage A. In February a toilet supply line failed while the family was away, and water ran for two days. Repairs to drywall, flooring and ceilings will cost $46,000; mold remediation is $18,000. Separately, the town will not issue the rebuild permit unless the electrical service is upgraded to current code - a $30,000 job in the opened walls. The Marchettis already collected $5,000 for mold remediation from an August claim in this same policy term. They have not started repairs.
1. What is payable for the February loss as the claim now stands?
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Total: $79,000.
| Item | Amount claimed | Payable | Reason |
|---|---|---|---|
| Water damage to finishes | $46,000 | $46,000 | Sudden and accidental discharge is a covered peril |
| Mold remediation | $18,000 | $5,000 | $10,000 aggregate sublimit − $5,000 already paid this term |
| Code-required electrical upgrade | $30,000 | $30,000 | Ordinance-or-law limit is 10% of $400,000 = $40,000 |
| Deductible | - | −$2,000 | One deductible per loss, not per coverage item |
| Net | $79,000 |
Key judgments: the mold sublimit is an aggregate per policy period, so prior mold dollars erode it - the insured has only $5,000 left. The ordinance-or-law limit of $40,000 comfortably covers the $30,000 upgrade because it applies to the part of the structure damaged by the covered peril.
2. Suppose the water had instead backed up from a floor drain and no water backup endorsement had been purchased. How would the answer change?
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It would fall to zero - and the mold and code work would fall with it.
- The HO-3 excludes loss caused by water that backs up through sewers or drains or overflows from a sump. It is an exclusion, not a limited coverage, unless the water backup endorsement (ISO HO 04 95 form) is attached.
- Because the mold and the code-required upgrade were both caused by the excluded peril, they fail for the same reason. An exclusion takes the whole chain of damage with it; sublimits only matter once a peril is covered.
- If the endorsement had been purchased at, say, a $10,000 limit, the most payable for the entire loss from that cause would be $10,000 less the $2,000 deductible = $8,000. The mold sublimit does not stack on top of the endorsement to create a larger recovery from an otherwise excluded cause.
- This is precisely the gap worth selling: a finished basement plus a $10,000 backup limit is still a large uninsured loss.
3. Does the ordinance-or-law payment depend on timing and on actually spending the money?
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Yes on both counts.
- The typical form pays only for increased costs arising from a law or ordinance enforced within 180 days of the loss. If the town's electrical requirement were issued 8 months later, that portion would not qualify - a date-stamped inspection report is the proof.
- Like replacement cost settlement, ordinance-or-law responds to costs actually incurred, so the carrier may pay after the work is done rather than in advance.
- The coverage is also limited to bringing the damaged portion into compliance; it does not fund a general upgrade of untouched wiring elsewhere in the house.
- Finally, the $40,000 limit is a policy-period limit: a second ordinance-triggered loss this term would share the remaining balance.