Water losses involving sewage backups are rarely simple. They are messy, invasive, and often far more destructive than what is visible to the naked eye. Yet insurers frequently attempt to limit these losses by applying a small sublimit for microbial or mold damage. An Illinois case pushes back on that approach in a way that policyholders, public adjusters, and coverage professionals should study carefully. 1
At the center of the dispute was a familiar argument. The insurer contended that all damage tied to sewage-related microbes fell neatly within a limited coverage provision—AC 20—capped at $5,000. The policyholders, however, argued that the loss was far more extensive. They maintained that sewage from a backup event was aerosolized through the HVAC system, spreading contaminants throughout the home. The distinction mattered because another provision—AC 22—provided significantly broader coverage for direct physical loss caused by water or water-borne material backing up from a sewer.
The appellate court rejected the simplistic application of the $5,000 cap. It recognized that not all water damage, which also results in microbes or mold, fits neatly into a sublimit box. The court explained:
Although we recognize that AC 20 limits coverage to $5,000 where a loss ‘results in’ microbes, we do not read AC 20 as necessarily precluding an insured from also getting the broader coverage under AC 22 for ‘direct physical loss,’ if it can show that microbes were ‘water-borne.’ Plaintiffs have alleged facts potentially implicating the broader coverage under AC 22 and have raised factual issues as to their right to coverage under that provision. Plaintiffs are entitled to further proceedings to explore such factual issues.
This passage from the court’s opinion should be clipped, saved, and used in sewage and water damage cases. It dismantles a common claims-handling tactic. Insurers often try to characterize the entirety of a sewage loss as a “microbial issue” to trigger a low sublimit payment. The court recognized that when microbes are carried as part of water-borne material from a covered peril, like a sewer backup, the resulting damage may fall within broader coverage grants, not just the sublimited provision. In practical terms, this means the cause and mechanism of damage matter. If contaminants are part of the water itself and cause direct physical loss, then the analysis does not stop at the microbial limitation. It expands into the broader insuring agreement.
This also highlights the importance of factual development. The policyholders in this case did not simply accept the insurer’s framing. They advanced a theory supported by how the loss occurred. They argued that aerosolized sewage contaminants were then spread through the HVAC system. This factual narrative opened the door to broader coverage and prevented summary judgment from prematurely shutting down the case.
There is another subtle but important lesson here regarding timing and claims handling. The policyholders also argued that the insurer waived reliance on the limitation by raising it late. While the court’s primary focus was on coverage interpretation, this argument highlights a recurring issue that insurers sometimes shift positions during the adjustment process. Those shifts can have legal consequences.
For public adjusters and policyholders, this case reinforces a core principle. Do not let the insurer define the loss in a way that limits recovery. Investigate how the damage occurred. Work with experts when necessary to determine the cause of the loss and do so early on following a loss. Understand the interplay between different coverage provisions and challenge assumptions that a sublimit automatically applies.
For insurers, the case serves as a reminder that policy language must be read as a whole, not selectively. Courts are increasingly unwilling to allow narrow provisions to swallow broader grants of coverage when the facts support a different interpretation.
Water losses involving sewage are among the most complex claims in property insurance. They involve science, building systems, and nuanced policy interpretation. Trying to force them into a sublimit box may be a convenient excuse to skip the complex coverage issues usually involved with these cases.
Thought For The Day
“The eye sees only what the mind is prepared to comprehend.”
— Robertson Davies
1 Schaff v. Travelers Home & Marine Ins. Co., 2025 IL App (1st) 240276, 2025 WL 3249567 (Il. App. 2025).