I am not in this transaction but sounds like gross negligence on the part of the agent giving advice which had adverse consequences.Time to call the main brokerage who has the listing and tell the qualifying broker the seller will sue if the broker doesn't immediately pay damages.Short sale or no short sale the damage is almost the same anyways.Could just do a DIL if no other liens are present to the bank.No legal advice.

Initially the board tried to claim this was not the building's responsibility as the owners must have been negligent with what they put down the garbage disposal thus clogging the pipes.

Those magic words of "more or less" only go so far.Depends on what you do wrong, degree of negligence or intent, you can get nailed for much more than the sale price or any loan amount of a deal.

They may request your quote/documentation of the damages and deny her claim (seems like negligence to me).

Called my insurance agent and he confirmed it was not covered but also stated that this seemed to be negligence from the tenant and wouldn't be covered by the insurance anyways.

Make sure your heating system is cleaned and tuned annually, do what you can to make the building as efficient as you can (windows, insulation, etc), and penalize the tenants for negligent abuse (like leaving windows wide open with the heat on).

Steve Kresse Eugene Kemp mine says I provide ongoing, but any pests as a result of tenant negligence will be on them intentional or unintentional (bugs as a result of lack of cleanliness, bed bugs, etc).

Shouldn't they be responsible to replace for their negligence?

I agree with @Jd Martin, but would also add that the claimant/plaintiff would also need to show negligence or prove the landlord was responsible because of something he "knew or should have known" or "did or failed to do."

You need to check with a local attorney because the laws in your state may differ from ours.In general,contractors are not usually legally responsible for theft that occurs on your property unless you can prove legally negligent behavior on the contractors part.You should read the contract you signed to see if they have a limited liability clause,if any.