Policyholder Question on Sewer Back-up Third Party Claim

by Charles R. Tutwiler on 10/16/2013

Here’s a question I was asked to answer on the United Policyholders website:
Q. My home was contaminated by sewer on May 7 and again on May 22 this year by a prime contractor hired by a state municipality MSD Metropolitan sewer District here in Asheville North Carolina. From what I understand, this is a third-party claim. The insurance company has done absolutely nothing to help me. I have been dealing with this for the last four months with pretty much no progress until this past week. They sent their first offer on Friday which is not close to reality. Is this considered a third-party claim? I have a copy of the pollution liability policy and it does not say anything about how it will replace my contents, actual cash value or replacement cost, nor does it say anything about provisions for Additional Living Expenses. Is there a possibility that is in a different policy? I just had an environmental company do some sampling for mold and other airborne fungi to be sure this has not spread in other parts of the house because it's been so long with no cleanup and decontamination. I’d like to know if any of your professionals have experience dealing with third-party claims and sewer damage/mold contamination.

A. It is somewhat difficult to answer your question with the information you provided but let me give it a try. You mention you have a copy of a pollution liability policy. Are you the named insured on this policy or is this a policy that covers the MSD Metropolitan sewer district for liability claims? The good news seems to be that they admitted liability as they made you an offer and thus some coverage for damages. So the fight now seems to be your actual damages.

If this is in fact a third party liability claim, you should be able to negotiate a settlement on all the outstanding issues, such as additional living expenses , the true cost to repair the building, and the ACTUAL CASH VALUE of your lost contents. Also, be aware that any sewer back-up will be what is called a BLACK WATER loss which requires a higher degree of professional involvement and more rigorous clean-up process than a normal water loss. If they will not agree, see if you can get them to go to some sort of arbitration forum where you can present your case and the facts of your loss. You may want to talk to an attorney about this, as rules of arbitration are often found in the statutes of your state. Also check out the American Arbitration Association to facilitate this process and find a local office by goggling American Arbitration Association.

Another option is that you may have coverage under you homeowner property insurance policy. If this loss is not excluded (have a qualified attorney read your policy and look for ensuing loss provisions) you have much better leverage to get this settled under this first party contract. Typically these policy forms have dispute resolution provisions such APPRAISAL that can be used to determine the amount of loss and damages. If you have coverage for sewer back-up, this may be the way to go. Some homeowners in Super Storm Sandy received settlements for sewer back-up when the insurance company adjusters had to agree the sewer back-up came first before the flood waters which may not have been covered unless the homeowner had flood insurance. But there may be a dollar cap on the amount they will pay. So look for that in your policy

If your first party insurance company pays you anything, they may subrogate (file a law suit against the responsible party) to get their money back, which may in itself be a bargaining chip with a liability carrier to try and avoid this expensive process.

Finally, if this was a city project and all you have is the city’s or contractors liability policy, I would start a campaign of calling and writing letters to city officials about how you are being treated. The squeaky wheel more often than not gets the oil. If that does not work and there is no first party coverage then you most likely will need to retain a lawyer. Good Luck

If you have questions regarding any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster or insurance claim experts.

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