Ask Your Peers  Homeowner Insurance coverage question 

An insured has a tenant occupied one family in NJ. The tenant advised that there was an unusual amount of moisture in the home. Upon inspection, it was determined that the hot water pipe in the attic crawl space had developed a small hole in it and water vapor had been escaping for some time. The leak caused mold to grow in the crawl space and the leak eventually fed down into the walls causing damage to the walls and floors. The policy had limited mold cover, but the carrier denied the entire claim and
all of the associated damages. Is this usual?

What was the reasoning for the denial of the claim?

Waiting on the official letter from the insured. My original thought was that while the damaged pipe may not be covered, the damages to the building caused by the leaking water should be? I haven't done personal lines in 25 years, so I don't know if things have changed.

yes probably falls under normal wear and tear

Outside of the cause of the hole in the pipe being excluded, or some sort of misrepresentation, the damages to the home (but not the pipe) should have been covered to the sublimit for mold. If the hole was caused by an infestation of raccoons or something, that might actually be excluded. If the damages were known, but long-ignored, by the claimant, they could deny coverage there too. Without a formal denial letter, with cause outlined, it's just guessing. You are right though, generally speaking leaky pipes are not covered but the water damage from them generally would be.

Would to need the why the Denial.
If the contract was an HO-3, this can be the basis of denial, as a rental property is covered by a DP-3 or DP-1 contract.

When do they think the hole formed? And was this insurer put into place?

It was written on a DP form. I need to get the determination letter/denial letter in hand to proceed. Apparently the tenants had been living in that condition for a long time. Noticed mold in one bathroom under a sink, but never said anything to landlord for a year or so. Landlord immediately noticed the humidity when they entered the home and had the pipe fixed and the mold remediated. Landlord gave the tenant their security in full back, assisted in getting them relocated and paid their moving expenses. The tenant rewarded them with a suit for the mold and alleged health issues to their children.

If what you put in the original post is that it is insured as an HO3 with a tenant then that is you reason. You must insure it as a DP3 and then determine that cause? Was the piping copper that got a lightning strike to develop the leak? Did someone put in a nail that caused the leak?

Thank you all for the help.

Was the policy form basic (DP1), Broad (Form 2), or Special (Form 3)? If it was a DP1, no types of plumbing leaks are covered. The mold limitation makes me suspect that this is a Broad or Special Form. In that case, the company may say that only "sudden and accidental discharge of water" is covered, and that this happened over a long period of time. It's a bit of a gray area, and most companies would pay, if they believed that the insured only very recently became aware, and the damage was concealed. The real answer is always that what is covered, is what the court says is covered, and if you go to bat for your insured, and stress that the damage was concealed, and he could not have been aware of the leak, I suspect the company will take another look, and pay up to the policy limits/sublimits.

The coverage denial is probably based on the fact that the water vapor had been leaking from the hot water pipe "for some period of time", and the tenant had been aware of the leak, or at least the mold, for over a year.

The ISO DP-3 contains the following exclusion: "Constant or repeated seepage or leakage of “water” or steam over a period of weeks, months or years from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance." It would seem that this exclusion applies to the situation so I'm afraid neither the direct water damage nor the consequential mold damage will be covered.

Perhaps an attorney could advise the landlord if he has a right to counter-sue the tenant for negligence in failing to report the leak or the mold condition in a reasonable period of time.