American Summit Insurance Company – Limit of Liability for Water Losses

AMERICAN SUMMIT INSURANCE COMPANY – LIMIT OF LIABILITY FOR WATER LOSSES

This is the first in a series of posts highlighting specific insurance company’s policies.  The reason we picked this one is because it’s relevant to one of our “water loss” clients at the moment.  Our firm specializes in water losses and fire losses.  One of our public adjusters has a client in Phoenix, Arizona who had a recent water loss.  He has a DP1 homeowner’s policy.  This is what is referred to as a “named peril” policy.  In other words, unless the policy specifically “names” a specific peril as being a covered peril, the insurance won’t cover damage caused by any other type of of peril.

This particular policy has an endorsement attached to it. An endorsement is a written document attached to an insurance policy that modifies the policy by changing the coverage afforded under the policy. An endorsement can add coverage for acts or things that are not covered as a part of the original policy or can take things away (such as in the case of a mold exclusion) and can be added at the inception of the policy or later during the renewal of the policy. Endorsements are also referred to as riders or addendums. Our client’s policy has an endorsement called “Arizona Dwelling Policy Amendatory Endorsement.” The reason for this state-specific endorsement is usually to make the policy comply with state laws.


This particular endorsement amends American Summit Insurance Company’s DP-1 Policy Form by deleting all of the “Perils Insured Against” in their entirety from the original policy and substitutes the following perils in their place:

• Fire or Lightning
• Sudden and Accidental Damage from Smoke
• Windstorm or Hail
• Explosion
• Aircraft and Vehicles
• Riot and Civil Commotion
• Vandalism and Malicious Mischief
• Sudden and Accidental Discharge, Leakage, Overflow or Release of Water or Steam (This is the one we’re interested in – since our client has a water loss from a burst pipe in the wall in kitchen.) The policy language goes on to say:
  
  
  “Sudden and accidental discharge, leakage, overflow or release of water or steam from within any portion of a plumbing system that is above the surface of the ground, or from within any portion of a heating or air conditioning system that is above the surface of the ground, or from within a household appliance.
  
  
  We do not cover sudden and accidental discharge, leakage, overflow or release of water or steam from within any portion of a plumbing system that is either below the surface of the ground or is within or below the slab or foundation, or from within any portion of a heating or air conditioning system that is either below the surface of the ground or is within or below the slab or foundation.”We do not cover loss caused by constant, repeated or intermittent discharge, seepage, leakage, overflow or release of water or steam.
  
  
  Our total LIMIT OF LIABILITY for loss(es) for this coverage during the policy period stated on the declarations page of this policy is 4% of Coverage A or $5,000, whichever is less, and is the most we will pay for the sum of all losses caused by this perid regardless of the number of losses that occur during the policy period stated on the declarations page. Each payment for a loss for this peril during the policy period will reduce this limit of liability by the amount of each such payment for the remainder of the policy period.
  
  
  This is not additional insurance and does not increase the COVERAGE A (DWELLING) or COVERAGE C (PERSONAL PROPERTY) limit of liability.”

• Fall of trees or limbs, including felling, topping or trimming
• Objects falling from the weight of ice, snow or sleet
• Collapse of building or any part of the building
• Breakage of glass which is part of the building including glass in storm doors and storm windows

Our client received an estimate from the field adjuster for American Summit Insurance Company for $11,266.84 to repair the damage to their kitchen and laundry room from this water loss. However, because of the above LIMIT OF LIABILITY listed in this endorsement, American Summit Insurance Company only issued a check for $5,000 to satisfy this claim – leaving the homeowner to come up with the balance of $6,266.84 out of their own pocket to make the repairs.


This is the reason it is SO IMPORTANT to understand the policy of insurance you purchase to protect your home or business. You pay your premiums year after year believing you will be covered in the event of catastrophe. But, that isn’t always the case. In fact, we see it every day – homeowners having to come out-of-pocket for things they thought would be covered.


So, if you’re considering purchasing a DP-1 Policy with American Summit Insurance Company, keep in mind their Limit of Liability for Water Losses that is included in their policy endorsement for Arizona. Damage caused by water is the number one home insurance claim. This does not include flood (which is only insured by the NFIP).  Most water claims are caused by burst pipes, failed water supply lines, or appliance failures (i.e. water heaters).  We frequently see water damage claims that settle in the $30,000 – $80,000 range.  Imagine if you had to pay for that completely out-of-pocket because your insurance policy either excluded coverage for water altogether – or if they only paid you $5,000 because that is the limit of liability stated in the policy.


As you can see, it’s worth it to shop around for the right policy, as well as specifically ask your agent what things are covered and what things are excluded.  It’s probably alright if you have an exclusion for perils that are less frequent – thus less risky (such as a terrorism event), but do you really want a policy that will exclude or severely limit your coverage on the most common home peril?