Potential Insurance Coverage Gaps or Exclusions That May Surprise Condo Associations at Claim Time

Property & Casualty

Potential Insurance Coverage Gaps or Exclusions That May Surprise Condo Associations at Claim Time

Hurricanes and windstorms can cause varying degrees of damage that may be covered differently based on the policy. Here is a list of potential insurance coverage gaps and possible exclusions Associations should consider for hurricanes or windstorms to help prepare before an event or file a claim after an event.

Wind-Driven Rain

Hurricanes and windstorms can cause water intrusion through windows, doors and other exterior openings. Typically, adjusters and building consultants will inspect the building envelope for any potential damage that may have occurred to allow water to enter the building. If there is no visible evidence of physical damage, such as roof damage or holes in the exterior from wind-driven debris, interior water damage will likely be classified as “wind-driven rain.” Frequently, policies with locations in coastal wind regions have specific language regarding wind-driven rain.

  • Some policies exclude wind-driven rain if there is no associated physical damage to the building envelope. As a result, there is no recovery unless you can show physical damage to the roof or exterior that allowed water to enter the building.
  • Some policies provide a specific sublimit for wind-driven rain. This sublimit may be significantly less than the overall policy limit.

Ordinance and Law

After a loss occurs, specific ordinances may be in place that dictate how a structure can be rebuilt (construction type, materials, size, etc.). Some policies include a separate sublimit for ordinance-related work if it is required because of an insurable event and if the insured was not required to comply with the order prior to the loss. Other policies exclude expenses of this nature in their entirety.

Protection and Preservation of Property

Insureds frequently incur expenses in advance of a storm to help protect their property, such as boarding windows/ doors. Some policies do include coverage for protection and preservation of property expenses.

  • Frequently an insurable event, such as a hurricane, must be “imminent” for coverage to extend. Additionally, the work must usually be “temporary” in nature only.
  • There will likely be a separate sublimit for these types of expenses.
  • Even if the loss does not ultimately materialize, coverage can still extend (assuming other qualifiers are satisfied). However, the deductible that would have applied had the threatened loss occurred (such as a hurricane) generally applies.
  • Track incurred expenses/invoices, including internal labor utilized and submit them as part of your claim.

Utility Service Interruption

After an area-wide event, utilities (power, water, sewer, etc.) may be interrupted because of damage.

  • Some policies may exclude losses that are a result of utility service interruptions. If there is coverage, a separate sublimit may likely apply.
  • Specific conditions may need to be satisfied before coverage applies:
    • Frequently, a specified outage length must be met or exceeded prior to coverage extending (24 or 48 hours, for example). The time period can be considered a waiting period or coverage qualifier.
    • Generally, there must be property damage from an “insurable loss” to the utility company’s facilities. Some policies will exclude damage to specific property (such as overhead lines). Additionally, the damage may have to be within a certain distance from an insured location. For example, the damage must be within five miles.
    • To the extent possible, it can be helpful to document any damage to utility supplier’s property after a loss to support your claim.
Property & Casualty Team

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