Insurance for Condo Water Tank Failure Questioned

J.L. from New Haven County writes:

Dear Mister Condo,

I am a condo owner who had some water damage due to a hot water tank. What are my rights as it relates information regarding my insurance claim? I know that it’s covered under the master policy but do I have the right to see the final claim/settlement? Can I ask for an itemized list of what’s covered and how much is being given for repairs? Can I choose my own contractor?

Mister Condo replies:

J.L., I am sorry that you experienced damage to your unit from a hot water tank. You didn’t tell me too much about what happened so let me explain what’s likely going to happen and how you can best protect yourself from future water tank failure issues. Even though such an event may have been covered by your association’s insurance previously, I would not be so quick to assume that it will still be covered. In 2010, the Connecticut State laws governing condominiums were modified. These changes are collectively referred to as the Common Interest Ownership Act (also known as CIOA). Many of the updates were governance related but some were insurance related. Depending on how old the failed water tank was and how the association’s insurance policy was written, the association’s insurer may or may not be on the hook for the claim. Let me explain.

Is the hot water tank yours or your neighbor’s? If it is yours and it was within its expected life range (usually 5 – 7 years) the damage caused is likely covered by your homeowner’s insurance policy (in Connecticut, HO-6) or your association’s policy. Claims are usually submitted to your HO-6 policy first, in which case you make the claim and you can easily track the claim process since it is your policy. If the tank belonged to a neighbor and the damage to your unit is being claimed, then your neighbor’s HO-6 policy is in play with your neighbor being the claimant even though you are the recipient of the funds expected. It is not uncommon for one unit owner to actually file suit against a neighboring unit owner for such a claim. It is also possible that your HO-6 insurer will negotiate with or sue the neighbor’s HO-6 carrier to bring about settlement.

If the claim is being handled through your association, then the association is the claimant and they are the ones who will make and track the claim. In this case, you are on the outside looking in and waiting to hear when the claim is processed and what monies are offered to cover the repair. Again, it is possible that you or your HO-6 insurer will wish to negotiate with or sue the association to bring about settlement.

The third scenario is becoming all too common in our state. If the water tank in question was beyond its useable life cycle, then there may be no insurance claim to make. Even though they may last for much longer, water tanks generally carry a shorter suggested use (5 – 7 years). If a 10 year-old water tank has failed and it went out of useable service 3 to 5 years ago, don’t be surprised if the insurance company refuses to pay the claim. In that case, you will likely either have to foot the repair bill on your own if it was your water tank that failed or you will need to sue your neighbor if it was their water tank. Either way, it can be an expensive and frustrating lesson. FYI, the same is true for other use items that are likely to fail. That is why most associations have published lists of required scheduled maintenance on a whole range of items that the insurance companies no longer have to pay for if the items are used beyond their expected life. That includes water supply hoses to washing machines, sink and toilet connections, and much more. The bottom line is that if it is a product that is likely to fail and it has not been properly maintained, the insurance company does not have to honor the claim.

I wish you a quick and positive resolve to your claim. All the best!