Damage Caused by Water Leaks

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Many property losses experienced by business owners involve water damage caused by leaky pipes. Water can be very destructive whether it seeps from a loose fitting or gushes from a ruptured main. This article will explain what types of water leaks are likely to be covered by a commercial property policy.

Water Exclusion

Most commercial property policies contain a broad water exclusion. This exclusion applies mainly to  flood and related perils like surface water, waves, sewer backup and the overflow of a body of water.

It does not apply to sprinkler leakage. Moreover, the water exclusion makes no mention of leaky pipes.

Property damage caused by water leaking from a broken pipe or appliance (such as a water heater) is generally covered. For example, suppose that a supply line to a water fountain in your office suddenly breaks late one night. Leaking water damages the floor near the water fountain. Assuming your property policy includes Building coverage, it should cover the cost to replace the damaged floor.

There are some types of water leaks that are not typically covered by commercial property policies. These include slow leaks and certain leaks caused by freezing.

Slow Leaks

A typical property policy excludes damage caused by water that leaks or seeps continuously for 14 days or more. This exclusion applies not only to pipe leaks but also to water in the form of humidity, moisture or vapor. It is intended to eliminate coverage for water damage that results from poor maintenance rather than a sudden accidental event.

For example, suppose that a clogged drain line in an air conditioning unit causes water to collect on the floor of your building. The leak is slow so no one notices the water for several months. By the time the problem is discovered, the floor under the air conditioner has suffered water damage. Because the leak continued for more than 14 days your insurer refuses to cover the damage to the floor.

Leaks Caused by Freezing

One of the most common cold weather hazards faced by business owners is a frozen water pipe. When a pipe freezes, water may slow to a trickle or not flow at all. Pressure inside the pipe from expanding ice may eventually cause the pipe to burst.

Many property policies contain a "freezing" exclusion similar to that found in the ISO property policy. The exclusion precludes damage caused by water, other liquids, powder or molten material that leaks or flows from plumbing, heating, air conditioning or other equipment caused by freezing. This exclusion contains three exceptions. It does not apply:​

  • To fireprotective systems
  • If you do your best to maintain heat in the building or
  • If you don't maintain heat in the building but you do drain the equipment and shut off the water or other liquid supply

Here are examples of losses that would likely fall under the exceptions to the "freezing" exclusion.

  • You own a commercial building that contains a wet sprinkler system (meaning the pipes are filled with water). Due to a lack of insulation, several pipes in the ceiling freeze. A pipe bursts and water damages your office furniture, computers, and other personal property.
  • You own a warehouse that is heated during the winter months. Unfortunately, a power outage causes the furnace to shut off and a plumbing pipe freezes. The pipe bursts, causing water damage to your equipment and inventory.
  • You own an unheated building that you use for storage. You drained the water heater and supply lines. Unbeknownst to you, water remained in the hot water line due to a clog. The pipe froze and then burst. Water damaged property you stored in the warehouse.

Damage to Appliances and Fire Protective Equipment

Suppose that a faulty pipe inside a boiler breaks. Will your property policy cover the cost of replacing the pipe? The answer is probably no. Many policies exclude the cost to repair any defect to an appliance or a plumbing system.

However, many property policies do pay the cost to repair or replace damaged parts of fire extinguishing equipment. This cost may be covered if the damage is caused by freezing or if it results in discharge of material from a fire protection system.

For instance, in the frozen sprinkler pipe example cited above, the damage to the pipe was caused by freezing.

Thus, your insurer may pay the cost of replacing the broken pipe.

Cost to Tear Out and Repair Damaged Building

In the water fountain scenario described above, suppose that the supply line is located inside a wall. In order to gain access to the pipe so you can replace it, you must remove a portion of the wall. Will your policy cover the cost to tear out and replace that portion of the wall? The answer is likely yes. Many policies cover the cost of tearing out and replacing any portion of the building you remove in order to repair damage to the plumbing system or an appliance (such as a boiler) from which water or another substance has escaped.


Pipe leaks can lead to mold. Many property policies exclude damage caused by mold (typically called fungus) but add back a limited amount of coverage. More information about mold coverage is available in a separate article.