Your Neighbor's Burst Pipe Damages Your Townhouse. Now What?

Question: I read your article about 6 Ways to Prevent Water Damage This Winter. I live in a townhouse and am wondering what happens if my neighbor's pipe bursts and the water damages my property. Would I submit a claim with my own insurer or would the damage be covered by my neighbor's insurance company because it was his pipe that burst?

Answer: You usually should submit a claim with your own insurance company for the damage to your home, even if the pipe was on your neighbor's property. Most homeowners insurance policies cover water damage from a leak that originates outside of the townhouse or condo unit, such as from an adjacent townhouse or unit. But a few limit coverage to water leaks that take place within the footprint of your own townhouse or unit, says Bill Wilson, a longtime insurance educator and CEO of InsuranceCommentary.com. He recommends filing a claim with your own insurer, which will then sort out the coverage and determine who is responsible. If the damage is covered by your policy, your insurer will pay your claim but then may "subrogate"— basically, stepping in for you to file a claim against your neighbor's coverage — to recoup some of the money from his insurer, if he ends up being legally responsible for the damages.

It can take a while for your insurer to determine whether your neighbor's insurer is liable, but you'll usually get your money before then. "The primary carrier's investigation into the cause of a leak, and associated liability, can take time — sometimes up to six months," says Annmarie Camp, executive vice president at Chubb Personal Risk Services. "Your insurer has a contract with you and will pay the claim regardless of the neighbor's liability. Filing the claim with your own carrier will ensure you can make timely repairs and restoration."

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Another advantage of filing a claim with your own insurer, even if your neighbor's pipe is at fault: Most homeowners policies cover damage to the building on a replacement cost basis, and they may also cover the cost to replace damaged possessions. But if the other insurer were to pay a liability claim instead, you might recover only the cost to buy an item of the same age and condition, rather than to replace it with a new item. This depreciated value, called actual cash value, could be far less than the cost to replace the damaged property, says Wilson. If your insurer subrogates against the neighbor's insurer, the result is usually behind the scenes. Your insurer may only get the depreciated value of the items from your neighbor's insurer, but you'd still receive the replacement value from your own insurance company, if covered by your policy. "Always check with your agent or broker to ensure you have replacement cost coverage on your homeowners policy," says Camp.