Water Exclusion Clause: What it Means, How it Works

Anthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional. He earned the Chartered Financial Consultant® designation for advanced financial planning, the Chartered Life Underwriter® designation for advanced insurance specialization, the Accredited Financial Counselor® for Financial Counseling, and both the Retirement Income Certified Professional® and Certified Retirement Counselor designations for advance retirement planning.

What Is a Water Exclusion Clause?

A water exclusion clause restricts coverage in homeowners and renter’s insurance policies for water-related claims. It may include damage caused by flood, tsunamis, standing water, groundwater, and drain or sewage backups.

Homeowners and renters can add some types of water damage coverage excluded in the standard policy by purchasing a rider or separate specialized insurance.

Key Takeaways

• A water exclusion clause is a standard feature in property insurance contracts, denying coverage for various categories of loss associated with aquatic events.
• Typically, water exclusion clauses include floods due to external causes, sewage or water main failures/backups, tsunamis, and standing or groundwater.
• Homeowners policies usually protect against water damage from a sudden mishap inside the home, such as a burst pipe or overflowing toilet.
• Separate flood insurance provides coverage against flooding.

Understanding a Water Exclusion Clause

A water exclusion clause is common in most property insurance policies. Specific areas prone to water-related natural disasters, like floods, tidal waves, or tsunamis, are the reason behind these exclusions. It is one of several types of exclusion clauses found in homeowners and renter insurance contracts. Other standard exclusions include earth movements (quakes, landslides), wars, certain government actions, and nuclear hazards and events.

However, homeowners insurance still covers water damage that occurs for specific reasons, such as a burst pipe or malfunctioning dishwasher, within the structure. Gradual damage or wear and tear over time are generally not covered.

Destruction arising from certain weather events, like thunderstorms causing a tree to crash through a wall or snow collapsing a roof, which allows water to pour in, are usually covered. However, the cost of repairing the wall or roof may not be covered. In 19 states and the District of Columbia, policyholders must pay an additional hurricane deductible before coverage kicks in for certain hurricane-related damages.

Special Considerations: Floods and Water Exclusion Clauses

Flooding is typically excluded unless it is due to an internal cause, such as a gushing washer/dryer or an overflowing toilet. Water exclusion clauses usually define a flood as rising or surface waters that come from the outside in. However, disputes arise regarding whether the clause applies to floods caused by man-made forces, like burst dams or collapsed levees, instead of natural forces, like continuous rain causing a river to overflow its banks. Surface water may include rain or melting snow and can count if it has been sitting on a man-made surface, such as pavement, a balcony, or a roof.

Despite the legal debate, flood damage from an external source seeping into a home is generally not covered by the hazard insurance component of standard homeowners policies. The cost and prevalence of water damage give homeowners and renters reasons to seek alternative coverage options.

$10,849

Average losses to homeowners due to water damage and freezing in 2018, according to the Insurance Information Institute.

Usually, this means purchasing a separate flood insurance policy. Properties in high-risk areas may require mortgaged homeowners to carry flood insurance to protect the structure of the dwelling. Flood insurance requires separate policies to cover the property and its contents. Federally backed lenders require flood insurance for homes in government-designated flood hazard zones.

Flood insurance policies are available for residential and commercial properties. Renters can also purchase flood insurance policies to cover their personal property in single-family homes, apartments, condominiums, or business properties.

Flood insurance rates are regulated by the federal National Flood Insurance Program (NFIP), ensuring the same policy costs the same amount regardless of the company it is purchased through.