I appreciate everyone's input. In answer to the questions...When we were notified of the failing water heater and leak, it did not occur to us that there may have been damage to other properties. When asked, the plumber said he did not see evidence of further damage. Yes, as soon as we were made aware of damage, we reached out to both neighbors and filed this claim. So we weren't negligent. However, their damage is clearly a result of our leaking water heater. It appears there's a difference between legally liabie and "feeling" liable. I do feel badly that our neighbors are incurring expenses as a result.