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Picture this: It is a beautiful spring morning at your insurance agency, but the day gets off to a horrible start when you get a call from a key client whose house is flooded due to a major sewer backup incident. The waste has overtaken your client's entire house, resulting in an ugly loss -- and most likely, there is no coverage under his standard homeowners policy. Not only is this damage difficult to clean up and expensive to repair, but it can also create significant health hazards.

The danger of sewage backup is one that becomes a nightmarish reality for many homeowners every year. Insurers often do not pay these losses due to various exclusions and restrictions in the homeowners policy. And these types of unfortunate situations may even find their way into the local press and social media, providing negative publicity for the P&C insurance industry.

Often, the city's sewage system is the cause of such losses. These incidents may cause tens of thousands of dollars in damage and make the house unlivable. A common culprit is a blockage in a city sanitary main. What makes the matter worse is damage resulting from water backup losses caused by a city-owned and maintained sewage system is often unrecoverable from the city. Many cities and states have laws granting them governmental immunity from reimbursing homeowners for city-caused sewer backup damage claims.

Other cities may not be so strict concerning total immunity, but they still have laws that limit their liability. For example, one city only reimburses homeowners for losses caused by city-owned sewer lines if the city was aware of a problem and failed to take proper steps to resolve it in a reasonable time period. In other words, if the municipality was unaware of the problem, it could legally deny liability. Or if a combination of city-owned and homeowner-owned tree roots caused a blockage and resulted in a sewer backup, the city may only be willing to pay part of the loss. And finally, some cities limit the maximum amount payable to a set figure, such as $5,000 or $10,000. This arbitrary figure may be woefully inadequate to properly clean up or repair the damage. In addition, flood insurance policies typically do not cover such a loss.

Under these scenarios, the homeowner would have to rely on his or her own homeowners policy with the Water Back Up and Sump Discharge or Overflow (HO 04 95) endorsement for water and sewer (i.e., waterborne materials) backup losses subject to a $250 deductible (but it only provides $5,000 in protection).

Unfortunately, most homeowners are not aware that an unendorsed homeowners insurance policy often does not cover such damage. For these reasons, insurers should either build this coverage into the homeowners form or make available a water backup or overflow endorsement with high limits to the homeowners or dwelling policy. The endorsement should cover water damage, remediation, and clean-up costs. One of the common problems is that the insurer endorsements often contain a fairly low limit, such as $5,000, although some insurers may provide higher limits for an additional premium. Sewer backup damage typically costs a homeowner anywhere from $10,000 to $75,000. To reduce coverage gaps, insureds should procure protection of $50,000 or $100,000. Some insurers catering to high-end homes provide this coverage with no limit as part of their standard policy.

Mitigate Sewer Backup Loss Exposure

Sewer backup loss exposures are a common coverage gap under a homeowners policy. In addition to procuring the proper insurance coverage, agents should recommend that their homeowners clients adopt several risk control techniques concerning this loss exposure, including the following.

• Do not put grease, paper towels, diapers, or other refuse down toilets or sinks. Avoiding this action will help prevent clogs in the pipes that connect your home to the sewer. Note that grease buildup in the lines is a common cause of water and sewage backup losses.
• If a sump pump, French drain, or other flood control system is connected to the sewer main, hire a licensed plumber to remove that connection. A municipality's plumbing code may not allow such a connection.
• Insureds should consider getting a licensed plumber to install a backflow-prevention device. This valve allows sewage to go out but not to come back in. The investment of between $1,000 and $5,000 will go a long way toward protecting your home.
• If there is a major sewer or drain backup into the home, a water loss remediation specialist should be hired to deal with the aftermath of this type of loss. The use of such an expert will help prevent disease and mitigate damage from mold and mildew.

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Copyright 2016
International Risk Management Institute, Inc.