Tuesday Morning Insurance Tidbit - Freezy Time

[InsuranceMan]

Happy Tuesday Morning Dear ADI Forum Readers,

 

     Today in the TMIT we are going to turn our attention to something that many of us don’t want to necessarily discuss or talk about.  With the days getting shorter, and many of you located in those cold and snowy areas (see, we don’t want to talk about this, right?!?!), something that needs to be at the top of your mind is the fact that as temperatures dip into that “below freezing” area, pipes can and do freeze.  Now, I don’t want to get into some type of physics lesson here, but we are all aware of what happens when water freezes, right?!?!?  Yeapers, it expands.  If a pipe is full of water, which distilleries have a boatload of, and it expands with nowhere else to go, pressure builds, and “BLAM”!!!!  Burst pipe, water everywhere, damage, soggy stuff, fried electrical, and big trouble!

     So, the question that arises is, are you covered for this type of a claim?  Do you know?  Do you care?  Well, you better know and you better care because I have seen this type of loss many times over, and water damage can be COSTLY!!!!!  So, do you know if you have coverage?  If you are a normal insurance purchaser, you rely on the agent to get you what you need and leave it at that.  You know what, if you are working with an expert who is a professional in the industry, then that may be OK.  If you are working with someone that is a “generalist” and you told them to just get you what they think you need, you could have issues.

     There are several different types of property coverage forms associated with insurance policies, and if you do not have the right coverage form it could cost you big dollars.  WAY BIGGER than the small premium charge that could have made all of the difference.  The three common property coverage forms are Basic, Broad, and Special.  Under the basic form this type of a loss IS NOT covered, so you may want to go dig that policy up and take a look at it to see what you have.  Under the Broad and Special forms, the coverage of frozen pipes is covered … with certain parameters that we will get into in a second.

     The big question is though, why would an agent only provide you with Basic coverage forms?  Well, honestly, they shouldn’t.  If they are any type of professional, they will know the difference and should know enough about your operation that this should not happen.  Once in a great while though, and if they have no idea what they should do for a distillery, they may end up working with an Excess & Surplus lines carrier that only can offer Basic property coverage.  Or it may be due to the age of the building or a myriad of other factors.  Point being, you better know, and if you don’t know your coverage form, you better ask.

     OK, now on to the Broad and Special forms.  Again, I have not seen a Broad forms policy for quite some time as there really is no reason to utilize this form unless the carrier specifies that they cannot provide anything better.  If that is the case, then the agent should be looking for other alternative options.  The cost differential between Broad and Special is dang near nothing, so there is no reason to shoot for the stars here folks.

      The Special property coverage form in insurance-ese is CP 10 30 04 02 (in most cases, it could be CP 10 30 06 95 so check for either) and in a nutshell, Special form covers EVERY TYPE OF LOSS unless it is specifically excluded (see your coverage form – Causes of Loss – Special form – A. Covered Causes of loss, subsection B – Exclusions, Item #2, subsection g. water.  I did this purposefully to get you to pull out the policy and look at it.  Clever, no????).  This is the best coverage that carriers can provide, and this is the coverage that you need to have.  This type of coverage has inaccurately been call “ALL PERIL” coverage, but that really is not true, as there are some specific exclusions that are always excluded by insurance policies.  That is not to say you cannot obtain coverage for things such as Earthquake, Mudslide, Hurricane, Terrorism, etc., it just means that you must purchase a separate and specific policy to cover those things.  So as you can see, it is not truly an “All Peril” coverage form, it is Special …  Isn’t everyone?!???!

     So, let’s get to the exclusionary language as it pertains to frozen pipes and water damage.  Again, under the Special Form CP 10 30, freezing of pipes is covered … provided a few things have happened.  The loss must be “sudden and accidental”, meaning that it cannot have been due to corroding pipes or other issues that could have been prevented earlier on.  As well, you must certify that in the case of a frozen pipe with resulting water damage that you have done what is needed to maintain adequate heat to prevent freezing, or in the case that you are closed for whatever reason for a period of time, that heat was maintained or the system was completely drained of all water.  If those things have been done, and you report the loss in a “timely manner”, you will have coverage.

     “Timely Manner” is an interesting term in insurance.  For a bunch of lawyers who like to define tons of words in policies (there is a whole definitions section for crying out loud), they never define what “timely” means.  I will tell you this, I define it as sooner than later for sure!  Not to mention that water damage is only part of a burst pipe claim.  Did you know that water damage, especially when absorbed by wood, sheetrock, etc., can start producing mold within 24-48 hours?????  Dang, that stuff is prolific, isn’t it??!?!?!  Mix that with heat and moisture (which distilleries have quite a bit of), and that process can happen even faster.

     “Well then, all knowing InsuranceMan 2.0!!!, what should I do in the case of a broken pipe and water damage claim?”  I am glad you asked, devoted reader.  In the case of a broken pipe that is spilling water everywhere, first and foremost, shut off the water, duh.  Then, do what you can to mitigate any of the damage.  Mop it up, push it into a floor drain, suck it up with a shop vac, whatever you can do to get a majority of the water out of your facility.  Then, FANS!!!!!!!!!  Lots of fans.  Being that the water damage came from a frozen pipe, I would not suggest throwing the doors open to get a cross breeze in your facility, it may just turn the whole place into an ice rink.  But in the case of a sudden and accidental burst pipe in warmer areas or at other times of the year, go ahead and throw those doors wide open.  The point is to start the drying process as quickly as possible to avoid any mold growth.  Speaking of, guess what, mold is EXCLUDED under every policy, including Special form, so mold = no Bueno.

     Once that process is underway, and you are looking at all of the damage the water has caused, pick up the phone and call your agent to tell them what happened.  I would consider that “timely” even if it is hours or a day or two later, since it can be an arduous process to get that water out of there.  When you contact your agent (which by the way, if it is not me, SERIOUSLY?!??!  What are you thinking at this point, obviously I know what I am doing and I have provided you with all this great information.  If you are not using me by now, I don’t even know what to say.) and report the claim.  They will get it to the company and an insurance adjustor will contact you, usually within 24 hours to come out and take a look.  Start inventorying the damage that you want them to take a look at so that you can make sure they see all the things you want them to see.  Then, voila, the claim should be paid and you can recoup the money/value you have into the process and recover your loss.

     Well dearest reader, that concludes today's fun insurance lesson on frozen and burst pipes.  If you have any questions about this type of loss situation or any other insurance questions what-so-ever, feel free to give me a call at any time.  I can be reached on the RED emergency InsuranceMan 2.0!!! phone at any time, day or night at 307-752-5961.  Until next time dear reader …

 

Stay Vigilant,

 

Aaron Linden

a.k.a. InsuranceMan 2.0!!!

307-752-5961

aaron@roaringforkins.com or insurancman2.0@yahoo.com