Property Insurance

Cold Temperatures in a Slow Economy: Insurance Claims from Frozen Pipes in Unoccupied Buildings

NBC News reported Wednesday that home insurance claims for damage resulting from frozen pipes are so high that insurers are hiring temporary adjusters to handle increased claims:

“We anticipate a large spike in frozen pipe claims,” said Peter Foley, the [American Insurance Association’s] vice president for claims. “In Washington, D.C., some of my colleagues have already had them in their own homes.”

Jan. 29, 2014, Cold Man Winter Strikes Water Pipes; Insurers Deluged, Kelly Harry & Steve James, NBC News.

What State Farm describes as a “catastrophe” comes while many families & communities struggle to make ends meet under the current economic conditions. These insurance claims can run as high as $15,000 in residential dwellings. A commercial property or multi-family housing can sustain even greater damages.

In many communities in Virginia, homes and commercial buildings remain vacant this winter because the local real estate market has not yet come back or the properties are only used seasonally. Frozen pipe damage is compounded in vacant buildings because:

  1. Few occupants take precautions to protect pipes from bursting before they move out of a building.
  2. Usually no one checks up on an unoccupied building when it is extremely cold. If there is a landlord, property manager, bank or other institutional investor, they aren’t likely to give a vacant building individual attention.
  3. No one is there to observe the damage as it develops, so greater drywall, carpet, mold, and other damage can occur.

These types of problems tend to result in litigation between the owners, banks, neighbors and insurance companies. This blog post explores three recent cases:

Hiring a Property Manager: Panda East Restaurant, Massachusetts

From 1987-2006, Issac Chow owned and operated the Panda East restaurant in Northampton, MA. Mr. Chow also purchased a house in Hadley, MA, for his employees to live in. While the restaurant was in business, Richard Lau managed both the restaurant and the house. When Panda East went out of business, all of its employees moved out of the house. Chow instructed Lau to keep the heat on in the Hadley house during the winter of 2006-07. Unfortunately, that winter the house suffered damage from burst frozen pipes. An inspector determined that the heat had been turned off. The flooding ruined carpets, furniture and drywall throughout the house.

Mr. Chow brought suit against Merrimack Mutual Fire Insurance Company in Massachusetts. On appeal, the Court could not determine what Chow did, if anything, to engage Lau as property manager for the house after the restaurant closed down. Since the employment relationship between Chow and Lau was unclear, the Court could not determine who was negligent.  Chow v. Merrimack Mut. Fire Ins. Co., 83 Mass. App. Ct. 622 (2013). The Panda East case shows that:

  1. Cold winters are a time bomb to an unoccupied house (or other building) not winterized to prevent frozen pipes.
  2. Owners must consider retaining a manager or house-sitter for properties that “go dark.”
  3. Written property management agreements work better than verbal directions. A contract document can clearly define the scope of the manager’s responsibility.

Homeowner’s Negligence: Potomac, Maryland

In addition to suing the insurance company, some lawyers try to sue public utilities for damages arising from frozen pipes in an abandoned home. Izatullo Khosmukhamedov and Zoulfia Issaeva brought a lawsuit against Potomac Electric Power Co. (PEPCO) for leaving the electricity on in their unoccupied house, which later suffered damage from burst frozen pipes.

These Plaintiffs primarily lived in Moscow, Russia. This couple owned a second home in Potomac, Maryland. Apparently, they grew tired of paying the heating and electric bills. After a stay in October 2008, they sought to turn all of these services off. In the following winter, the pipes in the house froze, burst and caused extensive damage. They made no effort to winterize, heat the property, turn off the water main or drain the pipes. In their lawsuit, they argued that PEPCO failed to completely turn-off the electricity, thus allowing the well water pump to push water into the house, intensifying the damage.

The Federal judge in Maryland dismissed their claims on summary judgment before trial, observing that:

It is well-settled, both in Maryland and other jurisdictions, that a property owner can reasonably foresee the danger that water pipes may freeze in the winter and breaches the duty of ordinary care by failing to adequately heat and/or drain them.

Koshmukhamedov v. PEPCO, No. 8:11-cv-00449-AW (D. Md. Feb. 19, 2013)

Judge Williams dismissed Plaintiffs’ claim against PEPCO. This case illustrates skepticism shown to Plaintiffs in frozen pipe cases where they failed to take reasonable precautions.

Most residential property insurance policies specifically exclude coverage if the property goes unoccupied. In a related case, this couple also sued their property insurer, State Farm. The same judge decided that the home was “unoccupied” and thus excluded from coverage by the terms of the policy. Koshmukhamedov v. State Farm Fire & Cas. Co., 946 F. Supp. 2d 443 (D. Md. May 28. 2013)

Insurance Claims in Foreclosure: Holiday Inn Express, Burnet, Texas

On our road trip, dear reader, we first warmed ourselves up with an a la carte dim sum brunch in Massachusetts. For lunch, we had a backfin crabcake in Maryland. The last stop on our trip takes us to a beef brisket dinner in central Texas. Our final case study shows how cashflow and property damage can compound problems for a business owner facing foreclosure. This double whammy presents special challenges to the bank and property insurer as well.

In late 2009, a Holiday Inn Express franchisee stopped making its mortgage payments to the bank that had lent the money for the purchase of the hotel building in Burnet, Texas. On January 9, 2010, the hotel suffered extensive damage from frozen pipes. On January 28, 2010, the bank sent the owner a foreclosure notice. A few days later, the property insurer sent the owner and bank a payment check. This was not cashed due to the disputes between the bank and owner. The owner and the insurance company could not agree on a proper estimate for the damage from the frozen pipes.

On March 2, 2010, the bank foreclosed on the property and purchased it at the sale.  The hotelier then sued the bank, insurance company and the subsequent purchaser. The former owner sued the insurance company for not fully compensating for the damage he alleged to be $133,681.62. The Court of Appeals of Texas focused on relevant language in the insurance company’s contract with the owner and the Bank’s loan documents for the hotel. Lenders typically require borrowers to maintain adequate insurance on the property. That way, the loan is adequately secured in the event that damage and default occur around the same time. Usually, a lender’s rights to the security under the loan documents are limited to the principal, interest and other indebtedness owed. A claim for insurance proceeds comes into play to the extent the foreclosure sale price does not satisfy the sums of money owed to the bank.

In Virginia, the foreclosure trustee must file an accounting with the commissioner of accounts that reconciles the indebtedness, sale price and other credits and debits that the bank is entitled to under the loan documents and law. Each state has its own foreclosure procedures.

The Texas Court of Appeals explained that the Bank was only entitled to any portion of the insurance claim proceeds necessary to satisfy any deficiency after the foreclosure. It appears that the Court sought to avoid a windfall to any party seeking to muscle the proceeds during the chaotic foreclosure period. Peacock Hospitality, Inc. d/b/a Holiday Inn Express-Burnet, 419 S.W.3d 649 (Ct. App. Tex. Nov. 27, 2013)

Neither foreclosures nor frozen pipe damage occur in a vacuum. An exceptionally focused owner might take measures to prevent catastrophic damage to a distressed property in an attempt to fetch the highest possible foreclosure sale price. When a property is in financial distress, its owners and lenders must also attend to any signficant insurance claims that may become an element of the foreclosure accounting.


These three cases illustrate why, as attorney Jim Autry says, “An abandoned building is more of a liability than an asset.” Frozen pipes present a serious threat to the value and habitability of unoccupied homes and commercial buildings. Except for a few “hot” areas, much of Virginia (and the country at large) has a significant inventory of uninhabited homes and commercial properties. This winter’s cold spells present unique challenges to property managers, water utilities, banks, owners and insurance companies. When a family or business must negotiate with more than one of these parties to resolve legal issues surrounding a distressed property, an experienced attorney can provide critical counseling and representation.

photo credit:

Ryan D Riley via photopin cc (for demonstrative purposes only and does not depict any of the actual properties described in this article)

John Colby Cowherd
John Colby Cowherd
Attorney protecting the rights of Virginia property owners. Cowherd PLC (703) 884-2894