My upstairs neighbor had a leaking toilet - the shut off valve was 50 years old and worn out. I repeatedly asked him to deal with it because it was raining in my bathroom directly below and he wouldn't call a plumber. He was threatened with action by the association, and decided to fix it himself. Without shutting off the main, he took a hack saw to the supply line to the toilet (I know). The property manager was two hours away with the key to the utility closet, required to shut off the main. The water gushed full force for two hours through all my ceilings into my condo below.

Fast forward to the clean up. The flood water took out half each of two bedrooms and two full bathrooms, hallway and part of the living room. In total, it wiped out about 70% of my place and I had to move out for repairs. A flood mitigation team came in, and moved the stuff from the wet area to the dry area. This stuff wasn't soaked but was damp. Then they sealed off the directly impacted areas. They removed the wet building materials, then set up commercial dehumidifiers and fans.

The insurance adjuster is giving me grief now because some items (mattresses and couches) that were on the other side of the plastic from the directly impacted areas are damp and getting mildewed (it has been 11 days now) but he says that since they were not in directly impacted areas of the home, they aren't covered. I have two thoughts about that. First, why didn't they take the plastic down and dry out the whole place? Second, what is this "directly impacted" nonsense? They got wet from the ambient moisture in the home caused by this incident.

So my question - what is standard? Should they have taken that plastic down to dehumidify given there were wet items on the other side of the plastic?

You should sue the person who lives above you, for the damages both direct and indirect caused by his actions of negligence. In additional you sue the property association and the property manager, for negligence and lack of due diligence in the fact that they knew there was no way to shut the water off, without a key, and they were negligence in not keeping someone on site 24 hours a day, that has access to shut off water mains.

I am not sure whose insurance you are talking about, yours, or the upstairs neighbors, the upstairs neighbors insurance is the one that is suppose to be paying you. If it is the upstairs neighbors insurance, just say fine, I will sue you for all damages and loss of use of apartment space, any labor for the cleanup, loss of work (if any) and an entire large list of loss that an attorney can think of, Plus attorney fees.