Does your financial institution have real estate owned (REO/OREO) properties or vacant properties with an active mortgage?
Are any of those properties located in areas prone to freezing temperatures?
There's a good chance you answered "Yes" to both of these questions, and while you may follow that up with "But I'm not too worried, we insure these properties year-round," you may be in for a surprise…
As it stands, most homeowners, property & casualty, and lender placed hazard policies do not cover water or mold damage caused by frozen/busted pipes if the insured failed to take “reasonable measures” to prevent the loss.
Some facts about vacant/unoccupied properties:
- Frozen pipes are one of the top 3 causes of insurance claims
- Water damage is often the biggest cost associated with busted pipes, especially if flooding continues for a longer period of time, with an average claim cost of $15K
- Clean-up costs on water-damaged properties typically range between $5K to $50K or more
- Mold damage, a likely result of water-damage, can add another $20K to $30k to overall clean-up costs
To avoid a loss or at least make sure you can demonstrate reasonable care was taken in the event of a loss, we advise that you take the following steps to protect all of your mortgaged, unoccupied properties in cold weather climates.
Checklist for Protecting Properties from Freeze Related Damages
Option A) Manage the Water Supply
If a property is anticipated to be vacant for an extended period of time, managing the water supply is your best bet. This method is less costly than maintaining controlled heat, while also offering a better method for reducing losses.
- Turn off the main water supply to the property to prevent frozen-pipes
- Open all accessible faucets starting on the top floor
- Use an air compressor at mild pressure to blow out the lines through the faucets
- Plunge remaining water from toilets and add anti-freeze
- Open the faucet to drain the hot-water heater, and shut-off the gas and electric supply if heat isn't going to be maintained
- Disconnect and drain garden hoses
- Use an air compressor to blow out the lines of the exterior sprinkler system
- Perform regular maintenance checks to quickly identify any pipe freezing or damage
Option B) Maintain Controlled Heat
If your vacant properties have interior sprinkler systems, it is better to control the heat rather than the water, since the water supply to internal sprinklers cannot be shut-off or controlled.
- If needed, contact the energy company to ensure the gas and electric bill has been switched to your financial institution and that service will be maintained
- Maintain a temperature of at least 55 degrees on the property
- Keep doors open to rooms with plumbing, to allow heat to flow throughout the home
- Open cabinet doors on sinks to allow more consistent temperature around plumbing
- Shut-off water supply and heat sources to the hot water heater, if separated from your boiler
- If temperatures in the air become extremely cold, increase the temperature for the property (check your policy to see what minimum temperature is required for claims to be paid)
- Perform regular maintenance checks to ensure heat is continuing to be supplied and to quickly identify any potential damage
If these protection measures seem a bit too tedious or unmanageable for your financial institution, you can always contract a plumbing, HVAC, or property preservation company to outsource this task at a fairly low cost. If you need assistance with locating a service provider, you can contact the state’s Plumbing-Heating-Cooling Contractors Association for a referral.
In the unfortunate event you take these precautions and still incur damage losses from frozen pipes, you should still file a claim to your carrier, as each policy is different, and conditions and exclusions will vary.
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