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CHST,CRIS,Marine Manager,XL Catlin

A week before an 18-story apartment building under construction in the suburbs of a large city in the Northeast was to be occupied, a three-inch water pipe on the 18th floor failed. Water flowed  overnight and for an undetermined period of time before drainage was noticed on the 5th floor. Damaged areas of the building included the elevators, cabinetry, drywall, ceiling fixtures, flooring and the fire alarm system. In addition to the direct physical losses that were incurred, there were extensive loss mitigation and debris removal expenses as well as soft costs and loss of rental income because of the delay. The investigation of the claim determined that the three-inch water pipe that failed was not defective. The failure was the result of poor workmanship, as the pipe had not been sealed properly. Further complicating the situation, there was no quality control program in place, thus the poor workmanship wasn’t discovered until it was too late.

The second most frequent cause of loss during construction is water damage. According to Insurance Services Office (ISO) data, it also represents a higher than average percentage of claims, accounting for about 12.84% of all claims. However, the average severity of a claim remains high at $138,404. Water damage losses are especially prevalent in three types of construction:


  • Apartments account for 26.60% of all claims; average severity $213,561
  • Institutional accounts for 20.87% of all claims; average severity $173,506
  • Office accounts for 15.60% of all claims; average severity $116,879

Water damage losses often occur in the final phase of the project when water systems are turned on and tested, as in the example cited above. Further, these losses often occur at night or over weekends and holidays when no one is around, resulting in much more significant damage than during the hours when workers are present.

Not only does water damage require large claims payouts, but it can also be a source of significant delay in the project along with substantial uninsurable losses that impact the overall profitability of a project.

Common causes of water damage

  • Internal systems

    • Mechanical
    • Plumbing
    • Fire sprinkler systems
    • Water storage tanks


  • External water sources

    • Water runoff and inadequate drainage
    • Leaking around flashing and openings

  • Defects in construction

    • Water tightness of impermeable envelope areas
    • Windows
    • Doors
    • Roof, gutter, flashing
    • Water proofing
    • Walls
    • Cracks or separations in any of these areas
    • Rain backup due to improper site work


  • Other causes of water damage claims


    • Lack of awareness and training
    • Lack of accountability
    • Use of new construction methods and materials
    • Shortage of skilled labor and use of inexperienced personnel
    • Poor workmanship and use of unskilled labor
    • Increased high-rise construction
    • Lack of standardized inspection and quality control processes
    • Lack of emergency response plans
    • Substandard quality control procedures around testing of critical systems

Water leak detection systemsTo install or not to install active water flow and detection systems is another question. This can be as simple as placing highly visible tags on shut-off switches and valves, and frequently checking water and utility connections and fittings as well as conducting routine maintenance in areas of concern. Then there are water detection and flow monitoring equipment. This requires a cost to benefit ratio before investing in the equipment. For large high-rise or multi-family use projects, the answer might be a resounding, yes, as the downtime from a major water damage claim could quickly outweigh the expense of a few strategically placed water detection monitors.Prevention planningEven if insurance is in place, early risk management planning is the key to mitigating potential water damage. As noted in the case history above, a water damage quality control process and emergency response plan would have enabled contractors and property developers to respond quickly to an event, thereby mitigating the amount of damage caused.The first step in prevention planning is to assign responsibility for the various parts of the plan. Planning should encompass pre-construction, active construction and project close-out. For example, assigning the safety department the responsibility of putting together a written plan with a training regimen for the project supervisors would be the first level of accountability. This should be followed by the supervisor’s project specific implementation, site inspections; subcontractor, vendor and security personnel training; contacting mitigation contractors,etc. Without clear levels of accountability, “the best plans are laid to waste” as the saying goes.

    For more information, download XL Catlin’s “Project Specific Water Damage Prevention Checklist" or contact the author, Dustin Jones, CHST, CRIS, Assistant Vice President, Marine Manager, Marine Insurance, XL Catlin.


    The information contained herein is intended for informational purposes only and does not constitute legal advice. For legal advice, seek the services of a competent attorney. Any descriptions of insurance provisions are general overviews only.

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