The side wall of a pump house blew out after a water tank exploded, caused by points stuck on the well pump. The insurance company denied coverage under the ISO 2000 edition HO-3 policy, citing a mechanical breakdown.
But is this correct?
If the pump broke down internally without any outside intervention, then the damage to the pump is not covered. But the insurer would have to point to another exclusion for the resulting damage.
The 2000 ISO HO-3 says: "Mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself" (emphasis added).
As the bolded language indicates, the mechanical breakdown exclusion applies to the device itself.
In addition, the policy says this at the end of the list of exclusions under Item c: "Under 2.b. and c. above, any ensuing loss to property described in Coverages A and B not precluded by any other provision in this policy is covered."
Again, the insurer would have to point to another exclusion to deny coverage for damage to the structure.
Finally, if this was a named perils form like the HO-2, there is no mechanical breakdown exclusion and damage caused by explosion is covered. In its 1991 HO filing, ISO went on record to say a special causes of loss form should not provide lesser coverage than a named perils form. Therefore, if the HO-2 covers this loss, so should the HO-3.
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