Water damage risk management essential
19 May 2021
Water damage is the second most frequent cause of loss during building construction and its effect is one of the most common types of insurance claims.
One water leak on the 19th floor at a construction site of a high-end apartment building in New York City resulted in EUR 24.5m ($30 m) in property damage and millions of dollars in delayed delivery penalties.
A relatively small water release can result in significant damage with sources of water leaks including burst pipes, roof leaks, overflowing toilets, faulty equipment and leaking appliances or plumbing fittings.
An added complication is that many modern buildings will have plumbing pipework concealed behind walls delaying the evidence of a leak. The resulting water damage can cause significant property damage and business interruption losses, lost rental income and lost trading revenue.
In response, construction companies are stepping up risk management efforts and making greater use of technology in response to the growing number of water damage claims during construction projects, according to industry sources.
Risk assessment and mitigation, together with a comprehensive emergency response plan are key elements of a water-damage risk- management plan. It is important that a plan is reviewed, tested and a check list of possible problems should include:
· Damp-proofing and waterproofing
· Water delivery or drainage system failure
· Site drainage problems
· Subsurface drainage problems
· Foundation and structural element problems
· Material storage problems
Identification of the cause of water damage is not always straightforward. The following types of first party insurances can be affected:
- Contract Works for buildings in the course of construction
- Latent defects on completed buildings (where the water leak damage to the finished building is caused by defective design, defective materials or defective workmanship that happened during construction)
- Property Insurance on completed buildings, e.g. burst pipes
Other types of third-party liability insurance are also affected if the claim can be proven to be the fault of a supplier or contractor:
- Public liability
- Product liability
- Professional indemnity