CP 10 32–WATER EXCLUSION ENDORSEMENT

BACKGROUND

Lower court rulings following Hurricane Katrina losses concluded that the term flood as used in Insurance Services Office (ISO) coverage forms was ambiguous. Both rulings were overturned on appeal but ISO decided to revise the water damage exclusions in all of its forms to avoid future misunderstandings. Use of this exclusion is mandatory starting in January 2009 or whenever a particular state approves it and the issuing insurance carrier adopts it. The intent is to clarify the current exclusion, not to broaden or restrict it, and to bring it in line with the personal lines water exclusion so that all ISO forms are consistent.

Note: While the language in this exclusion will be added to the next revision of ISO's Property forms, that revision may not be for another five years.

INTRODUCTION

This water damage exclusion is not specific to a particular covered cause of loss form but instead applies to the entire coverage form. This means that the present water exclusion in the coverage form is replaced with this new exclusion. This is not the way ISO typically adds exclusions and reveals that ISO wants this exclusion to be uniform throughout all of its coverage forms and policies.

ANALYSIS

A. This exclusion replaces the water exclusion in the coverage form or policy.

Note: It might be better to state that it replaces any and all water exclusions in the coverage form or policy because more than one of the covered causes of loss forms may apply to a coverage form or policy. However, the water damage exclusion in each of the causes of loss forms is identical.

B. Water

1. The first part of this exclusion has four terms that are unchanged, three terms that are modified and one new term compared to the exclusion being replaced. The terms that are unchanged are "flood," "surface water," "tides" and "overflow of any body of water." The new term is ‘’tidal water." The modified terms are:

• "waves" is broadened to be "waves, including tidal wave and tsunami." "Tidal wave" was included in the version being replaced but as a stand-alone term, not as part of the term "waves."
• "or their spray" is broadened to "or spray from any of these."
• "all whether driven by wind or not" is broadened to "all whether or not driven by wind, including storm surge."

Note: "Tsunami" and "storm surge" are new terms. Since neither is defined, judicial interpretation will be based on common usage and definitions in the dictionary.

2. The second part of this exclusion is unchanged. Mudslide or mudflow are not covered and were not covered previously.

3. The third part of the exclusion is broadened in two ways. The first is the how and the second is the what. In the version being replaced, water had to back up or overflow. In this new version, the water can be discharged in other ways and those other ways are not described. In the version being replaced, the water came from a sewer, drain or sump. In this new version, it can also come from a sump pump or related equipment, and the related equipment is also not described.

4. The fourth section is unchanged and describes the exclusion of damage from underground water seeping into doors, foundations, basements, etc.

5. The exclusion being replaced had no section five. This section introduces the term "waterborne material." Damage caused by this material carried by waters described in sections 1, 3 and 4 above, or by any material moved or carried by mudslides or mudflow described in section 2 above, is not covered.

Example: In an updated version of the Wizard of Oz, Dorothy’s house is picked up by a storm surge instead of a tornado and lands on top of the Wicked Witch’s castle. Section 5 excludes the damage that Dorothy’s house causes to the Wicked Witch’s castle.

ISO adds a paragraph explaining how this entire exclusion applies. It states that it applies whether any of the events are caused by an act of nature or "otherwise." In order to clarify the term "otherwise," ISO provides an example that uses the terms "dam," "seawall," "levee," "boundary" or "containment system" and states that failure of any of them to contain the water would be an "otherwise" type situation. However, it is important to note that by using this example format, ISO does not limit the exclusion to failure of only those specific items. The goal is to define the term "otherwise" as broadly as possible.

The last paragraph is very similar to the exclusion being replaced by stating that loss or damage caused by or resulting from fire, explosion or sprinkler leakage is covered.

Note: Of course, sprinkler leakage coverage applies only if sprinkler leakage is a covered cause of loss on the coverage form or policy.

Example: Continuing the previous example, Dorothy’s house striking the castle severs the overhead power lines, causing sparks to fly. The sparks ignite the Wicked Witch’s massive broom collection, resulting in the entire castle burning down. The Wicked Witch’s property form covers the fire damage.

Important Note: This endorsement can and will be added to all editions of ISO property forms. It is filed as mandatory, so its being attached should be expected, whether the carrier has adopted the latest edition of the ISO property forms or not.