Water Heater Failure

Step-by-step checklist

Identify

• Contact the claim adjuster right away. Ask them to hold the scene and for permission to retain an expert at the client's expense. Note the call in the file.
• On every claim, ask the client whether they want an origin and cause investigator to review the scene, or confirm one is already assigned. Note their answer in the file so the decision is on record.
• Make sure no evidence is touched or moved until the expert has secured the scene
• Get the client's approval for the scene exam cost. Most run at least $1,600 with travel, the day rate, and expenses.
• Find where the leak started
• Document it and report it

Hands off until the expert arrives. Nothing at the scene gets touched, moved, repaired, or thrown out until the origin and cause investigator has secured it. Evidence that's moved early can sink the whole recovery.

Notify

• Get an expert from the insurance carrier, or hire a plumber willing to write a statement of findings
• Secure the evidence
• Notify every party

Investigate

• Hold the scene exam and collect the evidence
• Test the evidence at a forensic lab
• Receive and review the expert's report

Demand

• Review payments and out-of-pocket costs
• Sort the supports into photos, estimates, invoices, and reports
• Send the full demand packet

Negotiate

• Follow up
• If liability is accepted, negotiate. If not, review for alternative dispute resolution (ADR), such as arbitration.

Settle

• Receive payment
• Issue the deductible and client payments
• Final file review, then close

1. Identify

How water heaters fail

• The tank corrodes and leaks or ruptures
• A connection leaks at the cold supply, hot outlet, gas line, or temperature and pressure relief (T&P) valve
• The T&P valve discharges repeatedly from overpressure
• The drain valve fails
• The pan or pan drain is missing, cracked, or clogged, so a small leak becomes a big loss
• Gas units can also cause fires through venting problems or flammable vapors nearby

Wear and tear, installation, service, or defect?

The exceptions that sink a claim

• Never serviced. If the anode rod was never inspected or replaced and it deteriorated over time, the tank corroded from lack of maintenance, not a defect. Manufacturers will point to their maintenance instructions.
• Water conditions. A water softener or aggressive water can eat through an anode faster. Expect the manufacturer to argue the owner should have checked it.
• Owner installation. If the insured installed it themselves, the installation claim is gone. Only a product claim remains.

Responsible parties to consider

• The manufacturer
• The installer, which is often a plumber or a retailer's installation subcontractor
• The seller or retailer, especially when they sold the unit with installation
• The builder, on new construction
• Any company that serviced the unit

Identify the unit

Photograph the rating plate before anything is moved. You need the brand, model number, serial number, capacity, and fuel type. The serial number usually encodes the manufacture date, and each brand formats it differently. For example:

• Rheem and Ruud: the first four digits are the month and year (MMYY)
• A.O. Smith: newer units start with the year and week (YYWW)
• Bradford White: the first letter is the year and the second is the month

That's the manufacture date, not the install date. Get the install date from the installation invoice, the permit, or the insured's records.

Tip: check the permit sticker. Most areas now require a permit to replace a water heater, and the installing plumber or electrician has to put their name on a permit sticker, usually on or near the unit. Photograph it before anything is moved. Then pull the permit from the local permit office to confirm who pulled it, the install date, and whether it passed inspection. No permit where one was required is another point against the installer.

2. Notify and investigate

Save the tank first. The plumber who replaces the unit will often haul the old one away. Call the insured and the mitigation company on day one: keep the tank, the connectors, the pan, and any parts removed.

Home warranty companies: protect the evidence before the tech arrives

Home warranty companies often send their own contractor, and the tech usually hauls away the old tank and parts as they finish the job. Once the tank leaves the house, your evidence is gone. Call the insured before the tech arrives, and have them:

1. Tell the tech not to take any evidence. The old tank, connectors, pan, and valves stay at the home.
2. Show the tech the origin of the loss before any work starts, so the tech can photograph it before the repair.
3. Take their own photos and video of the origin, the rating plate, and every connection before anything is touched.
4. Get the tech's name, company, and the warranty claim or work order number.
5. Bag and label every removed part and keep the tank somewhere safe until the exam.

Then put the warranty company and its contractor on notice. Request the warranty contract, the dispatch and work order, and the tech's notes and photos. Read the warranty contract for any liability limits or waivers.

Who to put on notice

• The manufacturer. The warranty information on the label or the manufacturer's website usually lists a claims contact.
• The installer and the seller or retailer
• Any service company that worked on the unit
• Each party's insurance carrier, once you know it
• The home warranty company and its contractor, if one was involved

Put them all on notice before anything is moved or tested, and invite them to the scene exam.

Big-box retailer installs (Lowe's and Home Depot)

Most water heaters are bought through Lowe's or Home Depot with installation included. These are big pockets, and they usually subcontract the install to a local plumber. That gives you two targets: the retailer that sold and arranged the install, and the subcontractor who did the work.

1. Get the purchase details from the insured. Receipt or order number, store location, purchase date, install date, and any install paperwork or emails.
2. Check the permit sticker and permit record. This often names the subcontractor before the retailer does.
3. Put the retailer on notice. Send one notice to the retailer's corporate claims or risk management department, and a short notice to the local store manager the same day, so both are on notice. Include the order number, store, install date, and loss address, and invite them to the scene exam.
4. In the same letter, request the install records: - The installer's name, address, and license number - The subcontractor or installation services agreement between the retailer and the installer - The installer's certificate of insurance, plus any additional insured endorsement naming the retailer - The work order, completion sign-off, and any customer complaints or callbacks
5. Put the subcontractor and its carrier on notice as soon as you know who they are.
6. If the retailer stalls, have the insured ask. Retailers often answer their own customer faster than a subrogation company. The insured can request their own purchase and installation records, including who installed the unit.

Why the subcontractor agreement matters: it usually requires the installer to carry insurance naming the retailer as an additional insured, and to defend and indemnify the retailer for the installer's work. It tells you whose policy will actually pay. Expect the retailer to tender your claim to the installer's carrier, and keep both on notice until one accepts.

Evidence checklist

• Photos and video of the unit in place before removal: the rating plate, every connection, the pan, the T&P discharge line, the expansion tank (or where one should be), and the venting on gas units
• The tank, connectors, pan, and removed parts, stored under chain of custody
• Installation invoice and building permit (check the local permit office)
• Purchase receipt and warranty registration
• Service and repair history, including any anode rod replacement or tank flushing
• Water conditions: a water softener, well water, or known hard water
• Home water pressure reading

Mitigation records, not just the estimate. Get the moisture maps, daily moisture readings, drying logs, equipment logs, and photos showing where the water came from and how far it spread. Record them in the file and send them to the adverse carrier with the demand. The estimate alone usually isn't enough to prove the water damage.

Caution: when the mitigation company makes it worse. Occasionally the mitigation company worsens the damage, for example by showing up late, missing wet areas, pulling the drying equipment too early, or letting mold take hold. When that happens, document it clearly: the timeline, the moisture readings from each visit, and photos. The adverse carrier will argue it isn't responsible for the added damage, and the mitigation company may become a responsible party for that part of the loss.

Code checks

• Drain pan: required where a leak would damage the building, such as an attic, an upper floor, or above a finished ceiling. The pan must be at least 1.5 inches deep with a drain at least 3/4 inch that ends somewhere visible (IRC P2801.6).
• T&P discharge line: must be its own line. It should never be tied into the pan drain.
• Expansion tank: many local codes require one on closed systems, such as homes with a backflow preventer or check valve. A missing one can cause repeated T&P discharge and stress on the tank.

Scene and lab exams

Use a plumbing expert or engineer. Hold a joint scene exam before the unit is removed, then a joint lab exam if the tank will be cut open or tested. Destructive testing without notice is spoliation. Your experts should follow the ASTM E860 and E1188 standards for examining and preserving evidence.

3. Demand, negotiate, and settle

Liability theories

• Against the manufacturer: product liability for a manufacturing or design defect, failure to warn, and breach of warranty
• Against the installer: negligent installation, including code violations
• Against a service company: negligent service or repair

Defenses to expect

Negotiating

• Manufacturers often route claims to their own adjusters or a third-party administrator. Expect them to ask for a lab exam before making an offer.
• Installers are usually covered under a commercial general liability policy. Get the policy through their certificate of insurance.
• When both the manufacturer and the installer share blame, expect them to point at each other. Push both and let them sort out the split.
• A warranty credit for a new tank is not a recovery. Don't let it be offered in place of your client's damages.

Settling

Review the release with the release checklist, then close with the standard closing letter and the insured's deductible reimbursement letter.

4. Letters for this loss

Sources

• 3 Water Heater Failures Subrogation Teams Should Know About (Alpine Intel)
• IRC water heater drain pan requirement (Jaspector)
• How to determine the age of your water heater (Hot Water Solutions NW)
• Statutes of limitations vs. statutes of repose (MWL)