Updated October 1, 2026.
Direct answer: ISO HO-3 and standard commercial property forms cover sudden direct physical loss unless excluded — and exclusions drive most uninsured property damage. Flood, earth movement, ordinance-or-law costs, sewer backup, service lines, and mold are excluded or capped; close each gap with a mapped endorsement or standalone policy, not a higher dwelling limit alone.
The ISO HO-3 Special Form is open perils on the dwelling: it covers all direct physical loss unless specifically excluded. For risk management, the exclusion section matters more than the covered-peril grant — it draws the line between transferred risk and retained risk. The exclusions that most often surprise owners and contractors at claim time are flood, earth movement, ordinance or law, sewer backup, service line failure, and mold. For how those limits sit inside the policy shell, see Property Insurance Policy Structure: Coverage A, B, C, D and How Each Applies.
Flood exclusion
The flood exclusion drives the largest share of uninsured U.S. property loss. ISO HO-3 and commercial property forms exclude surface water, overflow, waves, tidal water, storm surge, and related backup from any cause.
Definition — flood (ISO HO-3): Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; water that backs up through sewers or drains from flood; and subsurface water that exerts pressure on a foundation. Excluded under standard ISO HO-3, HO-5, and ISO commercial property forms.
FEMA’s National Flood Insurance Program (NFIP) remains the default residential mechanism in participating communities, with building limits up to $250,000 and contents up to $100,000 under Risk Rating 2.0. NFIP still leaves gaps for higher-value homes, most business income, many basement contents, and additional living expense on the dwelling side.
Private flood policies fill part of that gap with higher limits, backed by expanded reinsurance and ILS capacity — Artemis.bm tracked roughly $18 billion in catastrophe-bond issuance in the first half of 2026. NFIP still imposes a 30-day waiting period on most new purchases outside loan closing. Map exposure in Property Risk Assessment: Identifying, Quantifying, and Documenting Hazards before relying on a homeowner’s policy for water peril.
Earth movement exclusion
Earth movement is wider than “earthquake endorsement.” ISO forms exclude earthquake, landslide, mudflow, subsidence, sinkholes, erosion, and any earth rising, sinking, or shifting — natural or human-caused (mining, vibration, groundwater withdrawal).
Earthquake insurance is sold standalone or as an endorsement, priced to USGS seismic zones. In California, the California Earthquake Authority (CEA) anchors most residential sales, often with 10–25% deductibles. Other high-hazard zones remain under-insured relative to modeled loss.
Florida admitted carriers must offer sinkhole coverage under Fla. Stat. §627.706; optional sinkhole loss coverage buys back damage short of catastrophic collapse. Other sinkhole-prone states leave earth movement excluded unless endorsed.
Ordinance or law exclusion
After a covered fire or wind loss, rebuilding to current code costs more than replacing like with like. The ordinance or law exclusion strips payment for demolition of undamaged portions required by code, increased construction cost on the damaged portion, and loss in value to undamaged portions when law forces tear-down.
Without an ordinance or law endorsement, code-mandated electrical, energy, and accessibility upgrades are out of pocket even when the fire or wind loss is covered.
Endorsements typically run 10–50% of Coverage A. Older stock and strictly enforced commercial jurisdictions should buy the maximum available limit.
Sewer backup and sump pump overflow
ISO HO-3 excludes water backing up through sewers or drains and overflow from sump systems, regardless of cause — municipal overload, root-blocked laterals, failed pumps, or stuck backflow valves. Finished basements in combined sewer areas see $30,000–$80,000 losses from a single event.
Backup endorsements run roughly $50–$150 per year, often at $5,000–$25,000 limits — a floor, not a target, for finished basements. Document damage early; see Property Claim Filing and Documentation: From First Notice of Loss to Settlement.
Service line coverage gap
Standard HO-3 forms do not cover underground water, sewer, gas, or electric service lines from the property line to the structure. Failures commonly cost $3,000–$15,000+ to repair.
Service line endorsements ($25–$60 per year, limits often $10,000–$25,000) are inexpensive relative to severity and belong on most owner-occupied schedules.
Mold limitation and exclusion
After the early-2000s mold loss wave, carriers added exclusions and sublimits. Long-term moisture is excluded; mold after a sudden covered water loss may remain covered, subject to sublimits and causation disputes. Mold within 48–72 hours of a documented burst is easier to tie to the loss than mold found weeks later; carriers apply Insurance Claim Investigation: How Carriers Evaluate, Adjust, and Resolve Claims standards and ANSI/IICRC S520 in contested scope.
Intentional loss and fraud exclusions
Every property policy excludes loss intentionally caused by an insured. Carriers often apply that exclusion to all named insureds, including an innocent spouse or co-owner. Some states protect innocent co-insureds; most do not. Covered portions still settle under What Agreed Value Means in Insurance (vs ACV and RCV).
Frequently Asked Questions
Is flood damage covered by a standard homeowner’s insurance policy?
No. Flood damage is explicitly excluded from standard ISO HO-3 homeowner’s policies and standard commercial property policies. The exclusion applies to flooding from any external water source: rivers, streams, lakes, storm surge, tidal water, surface water, and overflow from any body of water. The primary flood insurance mechanism in the United States is the National Flood Insurance Program (NFIP), administered by FEMA, which provides up to $250,000 in building coverage and $100,000 in contents coverage for residential structures in participating communities. Private flood insurance is available from admitted and surplus lines carriers, often with higher limits and broader coverage than NFIP, supported by a deep insurance-linked securities market that saw record catastrophe-bond issuance of roughly $18 billion in the first half of 2026. A standard 30-day waiting period applies to NFIP policies purchased outside of the mortgage origination process.
What does the ordinance or law exclusion mean for a property insurance claim?
The ordinance or law exclusion removes coverage for any increased construction cost required to comply with current building codes when rebuilding after a covered loss. Without an ordinance or law endorsement, a policyholder whose 30-year-old home is damaged by fire receives only the cost to rebuild using the original construction specifications — but the building department requires current code compliance (updated electrical, AFCI breakers, modern insulation R-values, ADA provisions in commercial structures). The ordinance or law endorsement, typically available in limits of 10–50% of Coverage A, covers: Coverage A — demolition of the undamaged portion of the structure; Coverage B — increased cost of construction to comply with current codes; Coverage C — loss of value to the undamaged portion. Commercial properties in jurisdictions with aggressive code enforcement or historic preservation requirements particularly need robust ordinance or law limits.
Does homeowner’s insurance cover sewer backup and water damage from drains?
Standard ISO HO-3 policies exclude water damage that backs up through sewers or drains and water that overflows from a sump pump. This exclusion applies regardless of the cause of the backup — a municipal sewer overflow, root infiltration into the lateral sewer line, or sump pump failure all produce the same exclusion result. Sewer backup coverage is available as an endorsement from most homeowner’s carriers, typically in limits of $5,000–$25,000 for an annual premium of $50–$150. The endorsement is frequently undervalued — a sewer backup event can cause $30,000–$80,000 in damage to finished basements and first-floor living spaces. Higher limits should be sought, particularly for homes with finished basements.
What is the earth movement exclusion and does it cover more than earthquakes?
The earth movement exclusion in ISO HO-3 and commercial property policies is broader than earthquake coverage alone. It excludes losses caused by earthquake, landslide, mudflow, mudslide, subsidence, sinkholes, erosion, and any earth sinking, rising, or shifting. The exclusion applies whether the earth movement is caused by natural forces or human activity (mining subsidence, construction vibration, groundwater depletion causing soil consolidation). Earthquake coverage is available as a standalone policy or endorsement, with coverage parameters and pricing governed by the USGS seismic hazard zone in which the property is located. California Earthquake Authority (CEA) provides the primary residential earthquake insurance market in California; coverage is also available from admitted and surplus lines carriers in other seismic zones.
What is the mold exclusion in homeowner’s insurance and how is it handled?
Most post-2002 homeowner’s policies contain mold exclusions or sublimits following significant mold claim losses in the late 1990s and early 2000s. The exclusion typically prevents recovery for mold damage that results from a long-term moisture condition (a slow leak not reported for months), but mold that results directly from a covered water loss event may be covered as a consequence of the covered peril. The critical distinction is cause: mold resulting from a sudden and accidental covered water loss is generally covered (subject to any sublimit); mold resulting from neglected moisture or a non-covered cause (flood, chronic condensation) is excluded. Some carriers offer mold endorsements that restore limited mold coverage ($5,000–$10,000) for situations where the standard policy’s coverage determination is disputed.