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Security deposit question

So tenants moved out, did not tell me about water damage until inspection and said “it was a small leak a little while ago,” and it damaged the wall, molding and a little of the hardwood. Insurance said they can cover the wall but not the molding or floor as it’s obviously not sudden. Can I hit the security deposit with this since it was them not telling me about it? Or do I have to pay it myself? They have already threatened me with court after I informed them I have 21 days to give the deposit to them so I figured I’d make sure I know my stuff as I’m still pretty new to being a landlord.
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