Mitigating or Preventing Water Damage

Kevin Moore | Woodruff Sawyer

Water’s capacity to inflict severe and costly damage looms large over all construction projects. Whether it’s caused by Mother Nature or human error, water damage presents a ubiquitous threat. Because construction water damage claims can climb to hundreds of thousands of dollars, it’s worth taking steps to mitigate or prevent incidents, if possible. The cause of water damage largely dictates how an insurance policy responds to a construction-related claim. Losses can include property damage, debris removal, delayed costs, lost profits, and more.

Heavy duty crane truck construction site
The Two Major Sources of Water Damage

Construction site water damage threats exist both within a project itself and from external factors, such as the weather. Rain is the most likely external factor that can cause water damage, as it may get into any exposed or unfinished area and damage the structure and equipment.

Internally, faulty installation, physical defects, or incidental construction damage may cause bursting or gradual leaking in plumbing and sprinkler systems. Accidents are also a possibility; projects sites are naturally busy with lots of moving parts. Workers may accidentally damage a water source or puncture a pipe through a wall. Whether water damage is caused by internal or external events, costly project delays can be expected in the wake.

Keep an eye out for typical internal risk factors, including:

  • Uncovered building openings
  • Water delivery/drainage/sprinkler system failures
  • Subsurface drainage problems
  • Building envelope system deficiencies
  • Site draining problems
Identifying Water Damage Risks

A construction site’s risk exposure rises with every inch of water system it contains. The more water sources there are nearby, there is a greater risk of exposure. Each source, drain, and potential problem should be identified before construction begins.

Be aware that even the smallest design flaw—in the water systems or the building itself—can allow water to spread quickly through a construction site.

Try to identify the potential for two kinds of common construction water problems:

  • Busting pipes
  • Gradual leaks

Piping system failure is one of the most common and destructive causes of water damage. Older pipes are particularly at risk, so they should be attentively maintained and tested.

External factors may also lead to pipe bursting. For example, freezing temperatures can cause ice to build up in pipes, and ice build-up can cause pipes to burst. Earthquakes are another external threat. Facilities in earthquake-prone areas (like California) should prepare for leaks and breaks by ensuring piping components are sway-braced.

Gradual leaks might be less noticeable when they occur, but they can cause significant damage if allowed to continue. Frequently monitor for leaks of any size and address the root issue as soon as possible.

Understand Your Insurance Policy

Prepare for water damage to your construction site by carefully reading your insurance policy to discern what coverages, deductibles, and limits apply. Remember that a policy’s response to the claim is contingent on the source of the water damage. Notably, a policy will typically differentiate between damage caused by a flood and damage from other sources, including on-site leaks. Make sure you understand how flooding is defined and fits into the coverage.

Mitigation Process


Perform a constructability review to identify and eliminate design failures that potentially could cause water damage.

  • Evaluate contract documents and insurance policy language.
  • Evaluate specified materials/systems and how they will interrelate.
  • Evaluate the site for water drainage.
  • Ensure the drainage of water away from the structure and planned excavations when performing site planning and preparation.

Schedule the installation and testing of piping systems, such as hydronic systems, as early as possible in the project.

During Construction

Remain aware and identify potential problems that may lead to water damage.

  • Properly supervise work of subcontractors.
  • Perform quality control checks.
    • Identify and resolve potential water issues quickly.
  • Mock-up all critical waterproofing systems in advance.
    • Test areas of the mock-up that are prone to water infiltration and ensure any issues are addressed.
    • Schedule a mock-up review meeting with project personnel to discuss potential waterproofing issues.
    • Schedule a meeting to discuss critical building system details and inspection concerns.
    • Include mock-up approval as an activity in the schedule.
  • Develop a severe weather plan that assigns responsibilities for securing the site and mitigating any water damage. The plan should address:
    • Take steps to secure and shield the site in the event of a rainstorm.
    • Develop a specific and detailed response plans for each potential weather threat.
  • Perform a final inspection and pressure test immediately before charging piping systems with water even if the system has previously passed a hydrostatic test.
    • Piping systems may be altered either intentionally or unintentionally, resulting in a water release upon charging. The pipes should routinely be inspected and approved before charging.
  • Protect excavations from the accumulation of water which can potentially infiltrate the structure, alter the moisture content of affected soils and/or undermine the foundations.
  • Maintain backup storage plans for water-sensitive materials and equipment.
Post Construction
  • Address construction defects.
  • Maintain a quick-response team for warranty issues. Any water issues should be resolved within a maximum of 48 hours or sooner, if possible.

Most threats of water damage to your construction site can be prevented. Take the cautionary steps, including knowing the most likely threats, both catastrophic and small, and identifying internal and external sources of water damage. Further, it’s important to understand your insurance policy and how it responds to various claims.

Staying a step ahead of water damage threats can save time and money for your construction project. While you can’t eliminate every risk, you’ll mitigate the vast majority of them.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Without Reservations: Fourth Circuit Affirms That Vague Reservation of Rights Waived Insurers’ Coverage Arguments

Lara Degenhart Cassidy and Matthew J. Revis | Hunton Andrews Kurth

The Fourth Circuit recently affirmed insurance coverage for a South Carolina policyholder based on the “axiomatic principle” that an insurer which fails to fully and fairly articulate its potential coverage defenses in a reservation of rights letter loses the right to contest coverage on those grounds. Stoneledge at Lake Keowee Owner’s Assoc. v. Cincinnati Ins. Co., No. 19-2009, 2022 WL 17592121 (4th Cir. 2022) (quoting Harleysville Group Insurance v. Heritage Communities, Inc., 803 S.E.2d 288 (S.C. 2017)). More particularly, in Stoneledge, the Fourth Circuit affirmed per curiam a South Carolina District Court’s grant of summary judgment in favor of a homeowners association that had successfully sued its general contractors for construction defects and was seeking to recover the damages owed from the contractors’ insurers. The Fourth Circuit agreed that the insurers’ vague reservation of rights letters failed to reserve the defenses on which the insurers purported to deny coverage.

The question before the court in Stoneledge was whether the two insurers that had each agreed to defend their respective general-contractor insureds in the homeowner association’s underlying litigation had sufficiently informed their policyholders of their coverage positions. Specifically, the court considered whether the insurers provided notice of their intention to challenge coverage on specific bases and explained why those bases applied in their respective reservation of rights letters. Both of the insurers’ letters followed the typical approach of identifying various policy provisions and exclusions and outlining the general mechanics of those provisions, but they fell short of applying the provisions or exclusions to the facts in the case at hand. Further, the letters stated that the insurers would reevaluate how the provisions applied as the underlying case progressed. One of the insurer’s letters expressed doubt as to coverage but did not offer any analysis on the reasons for the prospective coverage denial.

The Fourth Circuit concluded that the insurers in Stoneledge had not sufficiently reserved their rights to deny coverage because their reservations of rights letters were simply copy-and-paste documents employing wait-and-see tactics. Adopting the “axiomatic principle” of insurance law from Harleysville, 803 S.E.2d 288, that “an insured must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage,” the court agreed that “generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) [are] not sufficient.” Id. at 297. The court also confirmed that an insurer saying “we will let you know later” does not constitute a valid reservation of rights. Id. at 299. Simply put, the Stoneledge court reaffirmed that the onus is on the insurers to show their work when writing their reservation of rights letters.

The Fourth Circuit also rejected the insurers’ contention that the court was creating coverage where none existed by finding that the insurers had waived defenses unarticulated in their respective reservation of rights letters. Looking to settled South Carolina law, the court concluded that an inadequate reservation of rights letter operated as an implied waiver of defenses and prevented a later coverage denial, even if the insurer disputed whether a covered event ever occurred. Ex parte Builders Mutual Insurance Company, 847 S.E.2d 87, 94 (S.C. 2020).

The Fourth Circuit opinion highlights that policyholders should evaluate reservations of rights from their insurers as comprehensive statements of the grounds on which the insurers intend to challenge coverage, and that the following shortcomings in reservation of rights letters may limit the insurer’s ability to pursue unarticulated or ill-defined coverage defenses down the road:

  • mere identification of policy information and policy terms without substantive analysis;
  • no discussion of the insurer’s position as to the relevant policy provisions mentioned;
  • no explanation of reasons for potentially denying coverage; and
  • failure to reserve rights on specific issues.

In sum, policyholders should be mindful to scrutinize reservation of rights letters and consult coverage counsel if faced with insurers employing claims-handling strategies that leave open questions about the scope of the insurer’s reservation of rights.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Whose Burden is It Anyway: All Risk vs. Covered Peril Policies

William S. Bennett | SDV Insights

First-party insurance coverage is typically structured on the basis of one of two types of insuring agreements: “All Risks” and “Covered Peril.” While the difference may seem innocuous, the ramifications of having one versus the other can be monumentally important in a disputed claim scenario. For the reasons discussed in this article, we recommend that, in almost every situation, the insured should aim to secure an “all risks” policy form.

What is the difference?

In an “all risks” policy form, the insuring agreement of the policy’s main coverage will typically state something to the effect of, “this policy insures all risks of direct physical loss or damage, except as excluded herein.” In other words, the insurance company is assuming “all risks” of physical loss and is not outright limiting the coverage to specific causes of loss.

In a “covered peril” policy form (sometimes called a “covered causes of loss” form), the insuring agreement will typically state, in effect, that it covers those covered perils identified in the form. In this situation, the policy’s coverage is conditional on the cause of loss falling within those defined perils. Note that, although not especially common, some policy forms will say that they cover those covered perils identified in the form but then defined “covered perils” or “covered causes of loss” as “all risks of direct physical loss or damage except as otherwise excluded.” This effectively converts the policy form back to an “all risks” policy form.

Why does the distinction matter?

The answer is a product of common law approaches by courts to policy interpretation and application in insurance coverage disputes. In nearly every jurisdiction in the country, burdens of proof in insurance disputes are clearly defined. Generally, the insured has the first burden in the dispute and must establish that the loss giving rise to the insurance claim triggers the policy’s insuring agreement. In a first-party insurance dispute, this means the insured will usually have the initial burden to establish that the loss was caused by either “all risks of direct physical loss or damage” or a “covered peril.” Which of these insuring agreements is in the policy greatly affects the standing of the insured in that coverage dispute.

If the policy has “all risks” language, the insured must merely show that the loss is a direct physical loss. If, on the other hand, the policy has “covered peril” language, the insured must now show that the loss is, in fact, caused by a specific peril – i.e., a named storm, wind-driven rain, or flood. In a situation where the facts of the loss involve multiple contributing causes or other issues of causation, especially, the insured can face a significant amount of legwork in that case to meet its initial burden of proof, creating an unnecessary disadvantage. Further, where the loss comes from an unusual cause, the insured almost certainly will not be able to trigger the insuring agreement, because the list of covered perils probably will not account for it.

Equally as important as the shifted burden to the insured with the “covered perils” language is the shifted burden away from the insurer. In insurance law, once the insured has established that the policy’s insuring agreement is triggered, the burden shifts to the insurer to demonstrate that an exclusion applies to prevent coverage. In an “all risks” situation, it may very well be that the policy is written to account for covering most of the same perils. However, by writing the limitations into the policy as an exclusion, rather than as an unlisted peril, the burden to demonstrate that the claim is not covered has been shifted to the insurer. Where the claim involves complicated causation issues, this distinction can be the difference between the insured securing coverage and the insurer avoiding it, especially taking into consideration other common law factors like the efficient proximate cause doctrine and rules regarding concurrent causation issues.

Since “all risks” policies are more comprehensive than named peril policies, include broader coverage, and are generally more favorable to the insured in a disputed claim scenario, they are also often more expensive in the market. Based on these considerations, insureds should carefully consider the type of policy they are considering purchasing. If it is a covered peril policy, any loss which is not caused by a peril expressly named in the policy would be excluded. However, if the insurance coverage is under an “all risks” policy, an insurer would need to demonstrate that the peril which led to the damage was specifically excluded under a policy limitation or exclusion.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Clock is Ticking: New Law Restricts Time-Limited Policy Limit Settlement Demands

Donimica C. Anderson and Daniel B. Heidtke | Duane Morris

Certain time-limited settlement demands delivered on or after January 1, 2023 will be subject to additional restrictions as California Code of Civil Procedure (“CCP”) Sections 999-999.5 take effect in the New Year. In the past, policyholder counsel have issued policy-limit demand letters, with little detail, and little time to respond; threats and concerns over acting in “bad faith” abound. In enacting CCP § 999-999.5, the California Legislature set about to establish restrictions and, importantly, clearer guidelines—for both policyholders and insurers.

Pursuant to CCP § 999(b)(2), a “time-limited demand” is defined as:

“an offer prior to the filing of the complaint or demand for arbitration to settle any cause of action or a claim for personal injury, property damage, bodily injury, or wrongful death made by or on behalf of a claimant to a tortfeasor with a liability insurance policy for purposes of settling the claim against the tortfeasor within the insurer’s limit of liability insurance, which by its terms must be accepted within a specified period of time.”

Thus, the new statutory requirements apply only to pre-litigation settlement demands and further only to limited causes of action and claims under automobile, homeowner, motor vehicle, or commercial premises liability insurance policies for property damage, personal or bodily injury and wrongful death claims. (CCP § 999.5(a).)

A “time-limited demand” must be in writing, and labeled as a time-limited demand or reference § 999.1. It also must contain “material terms,” which include the following:

(1) The time period within which the demand must be accepted, which shall not be fewer than 30 days (if sent by e-mail, fax, or certified mail), or not fewer than 33 days (if sent by mail);

(2) A clear and unequivocal offer to settle all claims, within policy limits;

(3) An offer for a complete release, from all present and future liability for the occurrence;

(4) The date and location of the loss;

(5) the claim number, if known;

(6) A description of all known injuries sustained by the claimant;

(7) Reasonable proof, which may include, if applicable, medical records or bills sufficient to support the claim.

(CCP § 999.1(a)-(g).) A “time-limited demand that does not substantially comply” with CCP § 999 et seq. “shall not be considered to be a reasonable offer to settle the claims against the tortfeasor for an amount within the insurance policy limits for purposes of any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.”

The law also establishes important guidelines for responding to time-limited demands, including a requirement that the insurer expressly reject the demand (should it choose to reject the demand). (See CCP § 999.3.) For example, an attempt to seek clarification or additional information, or a request for an extension, “shall not, in and of itself, be deemed a counteroffer or rejection of the demand.” (CCP § 999.3(b).) In addition, “[i]f, for any reason, an insurer does not accept a time-limited demand, the insurer shall notify the claimant, in writing, of is decision and the basis for its decision.” This notification must be sent prior to the expiration of the time-limited demand, “and shall be relevant in any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.” (CCP § 999.3(c).)

In the past, time-limited, policy limit demands provided opportunity for the unscrupulous to improperly attempt to manufacture bad faith litigation. But, in all, CCP §§ 999-999.5 appear to provide additional guidance and requirements to time-limited, policy limit demands that should help rein in any such conduct.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

This Year Don’t Let the Grinch Steal Your Insurance

Vivek Chopra and Mattison (Mattie) Kim | Perkins Coie

Forfeiting insurance coverage on a covered claim is a quick way to ruin the holidays. Every year, tens of thousands of covered claims are left unpaid due to clerical mistakes by policyholders or their brokers. These unpaid claims are not a matter of legal interpretation (e.g., “does the ‘flood exclusion’ preclude coverage for windstorm damage?” or “is my insurer obligated to defend me in copyright litigation?”).

Rather, we are addressing a far-too-common situation in which an insurer—playing the Grinch as usual—weasels out of paying on an undoubtedly covered claim purely because of an administrative error by the policyholder or its broker. These can result from a late notice, failing to include a building on a schedule of locations, or missing a proof of loss deadline.

And before you stop reading, comfortable like a warm blanket that this could never happen to you, be aware that even the smartest elves can forfeit coverage on a covered claim. Just last month, The New York Times reported that Harvard University, a pretty good school near Boston, after having received $25 million in coverage from its primary insurer for defense costs in a class-action lawsuit, may have forfeited an additional $15 million in coverage from its excess insurer. This occurred because the university failed to provide the excess insurer timely notice of the lawsuit. Put down the eggnog and read that again slowly: the primary insurer was paying for years on a covered claim, but the excess insurer—with the exact same policy language—can escape its crystal-clear coverage obligation because someone did not copy the excess insurer on a notice letter. The mistake is simple, and the ramifications are huge. Trust us; there is no quicker way to get on the Naughty List!

Four Steps for Coverage

So, this holiday season, we suggest you give your company (and yourself) a gift by following these four easy steps to avoid forfeiting potentially millions of dollars of insurance coverage—coverage you and your company have already purchased—for covered claims:

  1. Copy and paste the notice provisions in all company policies into a single document and share that document with the relevant people in the legal department. Someone unfamiliar with an insurance policy can get lost looking for the notice provisions, given that most policies are at least 40 or 50 pages long. Putting the operative language on a single sheet makes it far more likely that company employees will appreciate and understand it. Please note whether each policy provides coverage on an “occurrence” basis or a “claims made and reported” basis. While it is likely that a company’s general liability policy is occurrence based and requires notice of an “occurrence, offense, claim or suit” “as soon as practicable” (which generally means prompt under the circumstances), a company’s professional liability, directors and officers liability, employment practices liability, cyber, and errors and omissions policies are very likely “claims made and reported” policies. This means coverage under these policies is only available if the claim—a demand letter, a lawsuit, or sometimes a subpoena—is first received by the company and notice is provided to the insurer during the policy period (or shortly thereafter). Many state courts interpret these reporting provisions strictly. A common issue our clients confront is that a demand letter is received in year one, but it does not evolve into a lawsuit until year two. In those situations, a client often provides notice in year two, and the insurer denies coverage because the demand letter from year one arguably qualified as a claim that the insured should have reported in year one. Ouch!
  2. Compile a list of all lawsuits, demand letters, and subpoenas served on the company this past year and confirm that notice has been provided to the appropriate insurers. We realize that this list could run into the thousands for our larger clients, and we assume a tracking system is already in place. In our experience, the decision to provide notice is made at the outset and often by junior members of the legal or finance teams. However, lawsuits can evolve over time, and initial determinations regarding potential loss can be inaccurate. Several years ago, a sophisticated financial services client assigned a junior paralegal in the law department to review every incoming suit. The paralegal reviewed a complaint in which the amount at issue appeared minimal and determined notice under the company’s E&O policy was unnecessary because of a sizable retention. Unfortunately, the suit was a class action and while the damages claimed by the named plaintiff were minimal, the size of the potential class made the exposure huge. This error was discovered well after the end of the policy period of the claims-made-and-reported E&O policy in effect when the lawsuit was first received by the company. No fun! It’s far better to err on the side of reporting claims and potential claims to your insurer, even if you think the claims are meritless, won’t exceed the retention or deductible, or aren’t covered under your policy language.
  3. Pull the schedule of locations from your company’s property policy and confirm that all locations are listed. While larger property programs often include “unintentional errors or omissions” and “newly acquired property” endorsements, which provide coverage for locations accidentally left off a list of covered locations or for buildings purchased after the policy begins, this coverage can be limited. Nothing feels more like finding a lump of coal in your stocking than realizing after a major loss that the damaged building was left off the schedule of locations. This happens more often than expected, but it’s easy to avoid with a review of the schedule of locations.
  4. Check all of the definitions of “insured” in your company’s policies and confirm they include all of the entities in your company’s corporate structure. Definitions of “insured” can vary, and some policies include long lists of related entities as “additional named insureds.” In our experience, eyes tend to glaze over when looking at these lists, and confirming their accuracy is often not a very high priority during policy renewal. We recommend taking a beat this holiday season, grabbing a slice of fruitcake, and assigning the right person in the finance department to confirm the accuracy and completeness of your policies’ definition and/or list of covered insureds.

We’ve given you a list; be sure to check it twice! Don’t let the Grinch rob you of your insurance coverage because of an avoidable clerical error or administrative oversight. Check your policies, provide timely notice to insurers, and enjoy a safe holiday with your loved ones.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email