We have a rented hot water heater that burst and flooded the finished basement.

We went over the inspection report with the agent and he only highlighted the floor and water heater needing replacement.. and that everything else is cosmetic.

When the plumber removed the cleanout cap, water started coming out.

I'm assuming that this situation wouldn't pass inspection, but one could argue that all the spaces the guests have access to (i.e. bedroom, bathroom) are safe and habitable + the guests wouldn't be exposed to the kitchen.Also, do the city inspectors inspect other parts of the home the guests won't access (i.e. inspectors check the basement for water infiltration even though no guests would ever be living or even going down there). 

Quote from @Aaron Wolman: I would call the companies (gas/water/electric) to get estimates, or an estimator out there.

Quote from @Vince Scipione: In my professional oppinion I feel as though the influx of agents joining the field since covid significantly watered down the quality in the industry.

I’m in a similar situation but plan to meter water and power with my own units that can be read.

We are wanting to be as close to the water as possible. 

It wont cover wind hail fire or water damages etc?

When a water heater breaks at 9pm on a Sunday I get an email saying it happened, it’s been fixed and it cost $1200 give or take.