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Winter Insurance Alert For Building Owners—Avoiding Uninsured Losses Due To Frozen Pipes

Alexander J. Anglim

With the onset of winter, there are steps that landlords and other building owners should take to guard against damage caused by frozen pipes – and to maximize their insurance coverage in the event of a loss.

Every winter, building owners suffer damage due to frozen pipes. When ice forms inside a plumbing system it produces pressure that can cause pipes to burst, resulting in the uncontrolled flow of water into a building. Depending on how long it takes to discover and stop the leak, a burst pipe can cause a significant amount of property damage.

Most property owners expect this type of damage to be covered under their insurance policies. Unfortunately, many policyholders are surprised when their claims are denied, based upon language buried deep in their insurance policies. With proper planning, however, building owners can reduce the odds of a loss due to frozen pipe loss – and increase the odds that such loss (if it occurs) will be covered by insurance.

Check Your Insurance Policies 

Experience shows that few policyholders read their insurance policies. At this time of year, however, it is a good idea to see what your policy says about frozen pipe damage. Many policies do not cover frozen pipe claims unless the building owner takes steps before a loss to prevent pipes from freezing.

For example, many policies state that frozen pipe claims are not covered unless the policyholder: (1) cuts the water supply and drains the plumbing system; or (2) uses “reasonable care” to maintain heat in the building. It may be impractical to shut off the water and drain the system unless the building will be vacant for an extended period. Thus, typically a policyholder will need to show that it used “reasonable care” to keep the heat on.

Case Law Regarding “Reasonable Care”

If your insurance policy requires you to use “reasonable care” to maintain heat in your building then what, exactly, does that mean? Unfortunately, insurance policies do not define this important term, and

case law on this subject is sparse. Most of the decisions analyzing “reasonable care” in this context are unreported cases from courts outside New Jersey. The decisions are fact-sensitive and mainly involve homeowners insurance policies.

For example, a Michigan Court found that it was sufficient for a homeowner to have (a) verified that the heating unit was working properly; and (b) set the thermostat between 70 and 73 degrees while away from the property. See Hidalgo v. Mason Ins. Agency, 2005 WL 1313828 (Mich. Ct. App. June 2, 2005).

A federal court in New Jersey reached a similar result in a case involving a vacation home. In that case, the policyholders said that they left the heat on with the thermostat set to “low.” The insurance company’s expert opined that the very low electricity usage – and the fact that the pipes froze – showed that the policyholders had not left the heat on “low” as they claimed. The court denied the insurance company’s motion for summary judgment because of the contradiction between the policyholders’ testimony and the expert’s opinion. See Dooley v. Scottsdale Ins. Co., 2015 WL 685811, 2015 U.S. Dist. LEXIS 19140 (D.N.J. Feb. 18, 2015).

In other cases, courts have analyzed whether homeowners failed to properly service or maintain their heating systems. For example, in one case, the policyholder had not serviced his furnace in several years. See Dougherty v. Allstate Prop. & Cas. Ins. Co., 681 Fed. Appx. 112, 115 (3d Cir. 2017). In Dougherty, there was expert testimony that the furnace was in dire need of service, and that it failed when essential parts became clogged with debris and soot. There also was evidence suggesting the furnace had last been serviced seven years earlier, and the policyholder admitted that he had been living out of state for the previous five years and did not know if the furnace had been serviced during that time.

Practical Considerations and Preventive Action

Each situation is different, so it is not possible to state a general rule regarding what is “reasonable care.” However, some useful principles can be drawn from the case law and common sense.

  1. Plan Ahead 

It pays to have a plan to prevent damage. A good first step might be to consult some of the many helpful resources available on the internet. Your insurance company’s web site can be a good starting point. See, e.g., www.libertymutual.com/preventing-water-damage/frozen-pipes. Insurance industry organizations are another resource. See, e.g., https://disastersafety.org/winter-weather/nine-budget-friendly-ways-to-prepare-your-commercial-building-before-the-winter-season/ and https://disastersafety.org/winter-weather/protect-your-home-from-severe-winter-weather/. Some large restoration contractors also provide useful information on their web sites.

You may also want to consult HVAC and plumbing contractors. If you have a service contract, ask your contractor what preventive services are included, and whether additional work may be needed. For example, your contractor might recommend installing heat wires or additional insulation, particularly where the plumbing system could be exposed to cold temperatures (e.g., exterior walls).

  1. Have a Paper Trail

There is a difference between knowing that you used reasonable care and proving it.

Work performed by outside contractors should be evidenced by invoices, service contracts, and proof of your payment. Keep those documents someplace that is unlikely to be damaged by water if the plumbing system fails. For example, your file can be kept off-site, or in a water/fireproof container, or in digital format backed up to a “cloud” service.

You may also need to show that your heating system had fuel when the loss occurred. Therefore, you should retain copies of the utility bills or fuel oil bills, along with related proofs of payment.

Creating a paper trail – and persuading an insurer to pay a frozen pipe claim – may be more difficult for “do-it-yourself” property owners. As stated above, outside contractors generate invoices and other paperwork explaining their work. By contrast, a “DIY” policyholder might be forced to answer detailed questions (perhaps in the form of an examination under oath) regarding every aspect of the work he or she performed to maintain the heating system and ensure that the heat remained on. The insurer might also wonder whether the policyholder had the know-how to do the work properly. At a minimum, therefore, a “DIY” policyholder should consider maintaining a written maintenance log showing the dates and details of any maintenance work. Visual inspections could also be recorded by taking photos, which could be kept with the log.

  1. After a Loss: Notify Your Insurer, Preserve Evidence, and Consider Hiring Professionals

If you have a frozen pipe loss, you will need to act quickly. Report the claim to your insurance company immediately. You may want to hire a restoration contractor to help recover from the loss. A good restoration contractor should be able to respond on short notice, even during off-hours.

To the fullest extent possible, preserve evidence of the damage. Depending on the size of the loss, you may want to consider hiring a good public adjuster to assist.

Consider engaging coverage counsel to assist you. A good lawyer can help you to avoid costly missteps. Here, the adage “a stitch in time saves nine” is apt.

-Alexander J. Anglim, Outside General Counsel

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