Yes. Its fine, if you honestly stated on your insurance forms that your second property was an investment and not an owner occupied unit. The insurance is definitely more expensive, but it saves your ass when you have fucked up tenants.
If you did not adequately detail the occupancy, then hopefully you have saved a portion of your monthly profits in a growth fund to pay for the damages.
Even if you do go through the insurance, you would want to hire your own private mold investigation team to do a deep dive inspection. Mold can come back and bite you in the ass if a future tenant sues after getting sick. Also water damage claims on a title sucks when it comes to selling and getting new insurance. Your current insurance company may drop you once they repair the damage.
If your tenants are family, hopefully y'all can come to a shared cost agreement. Don't mess around with water damage. Maybe clean and flip. Take the proceeds and buy another revenue generating property.
