Does Home Insurance Cover Water Damage?

Each year, the Joint Office for Investigation of Water Seepage receives between 30 and 40 thousand leakage complaints, primarily due to ceiling leaks and pipe bursts. ¹ Considering that the average age of buildings in Hong Kong exceeds 30 years, and given the city's humid and rainy climate, issues like pipe bursts and ceiling leaks seem to be inevitable.

Luckily, home insurance helps cover a wide range of misfortunes caused by water damage. But it’s important to be aware of which incidents and expenses are covered under the policy — and which ones are not. This article will run you through everything you need to know about water damage, from finding the source of a water leak to what home insurance will cover.

What does home insurance cover, exactly?

• Home contents and household items

Whether it’s ceiling leaks, pipe bursts, or damage from typhoons and heavy rainfalls, any type of physical damage caused to property can be referred as “water damage” — which is usually covered by home insurance policy. Such coverage typically applies to home contents and household items including furniture, appliances, decorations, computers, electronic devices, and other valuable items.

• Repairs and Replacement costs

Home insurance would also help cover the costs of repairing or replacing the walls and floors if they are damaged by a covered risk, such as ceiling leaks, pipe bursts, or incidents related to adverse weather conditions (eg. typhoons, rainstorm).

• Alternative accommodations

If your home experiences severe flooding which forces you to move into a hotel or a temporary house while repairs are being made, your home insurance policy may cover these additional living expenses. However, such expenses must be reasonable and necessary, and your insurer will decide whether to accept the claim based on the actual extent of the damage.

• Emergency home assistance

Water leaks and flooding can often lead to home emergencies such as electrical malfunction and burst pipes. To help with these situations, some home insurance policies offer 24-hour emergency assistance on electrical, plumbing and locksmith referral services. Some insurers will even go the extra mile to arrange for professional technicians to directly visit the insured’s house.

• Legal liability coverage

Water damage can not only wreak havoc on your home and contents but also carries potential legal liability risks. Without insurance, if a leak affects someone else's property, you could be liable for steep compensation costs.

There was a case where a homeowner was suspected of causing elevator damage due to a burst pipe in their home and later faced over a million dollars in compensation fees demanded by the building management! If the homeowner had home insurance, these compensation costs could have been covered by the insurance company.

The 4 most common covered water damage scenarios

A small leak can be the start of a much bigger problem over time, and the potential liability can be staggering if you leave the problem unsolved. Fortunately, home insurance typically offers protection against such incidents. No matter what type of water damage it is, you should always identify the source of the leak before taking the next steps. We’ve outlined the 4 most common covered perils of water damage to help guide you through the process.

1. Water coming in from the ceilings or neighbor’s property

If you experience water damage from an upstairs unit or another neighbor, such as leaks affecting your ceiling or walls, you should document the affected property and items immediately. Take photos of the water-damaged areas and possessions. Then, have your insurance company's representative coordinate with the neighbors responsible for the leak to handle the situation.

Water leaks from above or adjacent units can lead to significant damage to belongings, including furniture, household appliances, and computers. In many cases, such damage is covered under home insurance policies. That’s why when it comes to repairing your ceiling or walls, you should always keep all repair receipts or estimates. These documents are essential for making an insurance claim later on.

2. Burst pipes or leaking pipes in your own home

Another common home water leak issue arises from burst pipes or faulty plumbing in your own home. Generally speaking, if the burst is accidental—such as a contractor accidentally drilling through a pipe during renovations or a neighbor inadvertently damaging your plumbing while drilling into a wall—the resulting damage to property (including furniture, appliances, and personal items) and the cost of repairs can be covered by home insurance.

However, it's important to note that leaks caused by aging pipes might not be eligible for compensation. This distinction is crucial because insurance coverage often hinges on the nature of the incident leading to the damage. More details on this will be explained later.

3. Water leaks coming from your unit to your neighbor

When your unit's water leak impacts a neighbor downstairs or nearby, causing property damage or even issues like elevator malfunctions, you can be held liable for compensation and responsible for the repairs. Luckily, this situation is covered under the "legal liability" section of your home insurance policy. In such events, you should immediately inform both the property management and your insurance company. Your insurer will handle negotiations with the affected parties.

Typically, the personal legal liability protection in your home insurance will compensate for these damages, addressing any legal responsibilities you may have due to the leak. This coverage ensures you are protected from claims related to the incident.

4. Water coming out of the wall (exterior wall leaks)

During typhoon seasons, many households often face the hassle of dealing with leaks in their exterior walls due to storms and heavy rain. If you have home insurance, damages to home contents due to rain penetration during storms can be compensated. This includes damage to furniture and appliances from rainwater, as well as the costs for renovations and repairs needed because of the leaks in exterior walls. However, be aware that leaks resulting from aging and cracks in exterior walls may not be covered by your insurance.

How to find the source of a water leak?

Step 1: Observe the seepage area and the shape of the stain

The area and shape of a water stain can often reveal the cause and source of a leak. If you notice a leak in the ceiling, the first step is to observe where the leak appears, so you can tell where the water is coming from.

1. Defective drainage pipes embedded in the floor slab of the upper flat

• Seepage area below the kitchen, toilet, or bathroom
• Intermittent seepage
• Circular, ring-like stains that are dark yellow or brown
• Moldy seepage area with a stinky smell

2. Defective waterproofing of the floor slab of the upper flat

• Seepage area below the bathroom, surface channel, or shower area
• Relatively large seepage area with even dampness, or near walls

3. Leaking water supply pipe embedded in the floor slab of the upper flat

• Water dripping persistently at the seepage area
• Presence of crystalline sediments at the seepage area (signs of saltwater)

The majority of ceiling leaks come from your upstairs neighbor. However, if your ceiling leak does not exhibit any of the above signs, or if an inspection has confirmed that there is no leakage from the unit above, then the leak in your ceiling is likely due to seepage through the external walls.

Step 2: Reach out to your upstairs neighbor

After inspecting the source of the leak, you should reach out to your neighbor upstairs to discuss possible solutions. Describe the situation and then seek their approval to allow you (or a licensed plumber) to conduct a more thorough investigation.

If it is confirmed that the leak is coming from their flat, you should agree with the neighbor to share the responsibility for repair costs and hiring a professional plumber.

Step 3: Seek Assistance from the authority if the neighbor is uncooperative

If the upstairs neighbor is unwilling to cooperate or to bear the cost of repairs for the ceiling leak, you can seek help from the Joint Office for Water Seepage. Once they receive your complaint, they will send a specialist to the leaking unit for a thorough investigation.

If it is confirmed that your neighbor upstairs is the source of the leak, they will issue a “Nuisance Notice” to your neighbor. This notice mandates that repairs must be carried out by a specified date. Non-compliance may lead to legal action and fines.

Step 4: Consider civil litigation if all else fails

In extreme cases, if the neighbor responsible for the leak refuses to cooperate, or if the authority is unable to identify the source of the leak and withdraws from the case, you may consider taking legal action for civil compensation. You can hire a private company or a notary office to investigate the source of the ceiling leak. After obtaining a written report from an expert, you can file a lawsuit in court. The judge will then review the case and decide on the legal responsibilities and compensation.

Nonetheless, it's important to remember that home insurance generally covers only the damage to personal property resulting from water leaks. Repairs to the ceiling, however, are typically covered under fire insurance policies. Additionally, if you're unsure about the coverage details, you should contact your insurance company immediately after discovering a ceiling leak. They will provide you with clear instructions on how to proceed.

What types of water damage are not covered? Beware of common exclusions!

Lack of maintenance, aging pipes

Generally speaking, home insurance only covers water damage that is caused by sudden and accidental events but not gradual damage that develops over time from lack of maintenance. These kinds of water damage are usually classified as "natural wear and tear," which is one of the common exclusions of your home policy.

In other words, if the water leakage accident in your home is due to lack of maintenance, aging pipes, or the aging of the property, then the related water damage is generally not covered (or only partially compensated), and the repair costs must be borne by yourself.

Homeowner negligence

One of the most common exclusions is damage resulting from personal negligence, such as forgetting to turn off the water tap or to close windows during a typhoon. Losses resulting from these oversights are generally not covered by your home insurance policy.

Unoccupied property

If the insured unit is left unoccupied or vacant for a long period of time (typically more than 30 consecutive days), your insurer may deny the compensation claims for any water damage losses that occur during this period.

Premiums: The cheaper the better? Watch out for deductibles!

Often when looking for an affordable home insurance plan, people end up buying whatever is the least expensive. However, it's important to note that home insurance policies usually have deductibles that you will have to pay before the insurer will cover the costs.

For example, if the policyholder is eligible to claim HK$10,000 for damages, and the policy specifies a deductible of HK$2,000, the policyholder must first pay HK$2,000 out of pocket before the insurance company covers the remaining HK$8,000.

In most cases, the cheaper the premiums, the higher the out-of-pocket costs will tend to be. Therefore, when it comes to home insurance, cheaper isn't always better. Before purchasing a policy, make sure to also check if the coverage amount is suitable for your needs.