Larry Bache – Property Insurance Coverage Law Blog – September 18, 2014
If you are a frequent reader of this blog, you are likely familiar with the general rule that policy language determined to be ambiguous is read in favor of the insured because the insured is the nondrafting party. A contract is ambiguous when its language is reasonably susceptible to more than one interpretation, or is subject to conflicting interests.
There are two types of ambiguities — patent and latent.
Patent ambiguities are on the face of the document or policy, while latent ambiguities do not become clear until extrinsic evidence is introduced and requires parties to interpret the language in two or more possible ways.
Recently, the Second District Court of Appeal overturned a summary judgment in favor of the insurer, Castle Key Indemnity Company, holding that the term “sudden,” as used in the policy, was a latent ambiguity.
In Price v. Castle Key Indemnity Company,1 water flowed from a pipe going to Mr. Price’s upstairs toilet for approximately thirty days while he was out of town. Castle Key based its denial on the policy’s continuous seepage exclusionary provision:
Seepage, meaning continuous or repeated seepage or leakage over a period of weeks, months, or years, of water, steam, or fuel . . . from, within[,] or around any plumbing fixtures, including, but not limited to shower stalls, shower baths, tub installations, sinks[,] or other fixtures designed for the use of water or steam.
Mr. Price contended that based on that time frame and the total number of gallons that escaped, the water had to have been exiting the pipe at a rate of 6000 gallons per day. Mr. Price argued that such a rate, at a minimum, creates an ambiguity as to whether the incident could be defined as seepage. Mr. Price further argued that the term “sudden” is not defined in the policy and that his situation should be covered because “sudden” can mean unexpected, a definition that may apply to a flow that occurs over time.
Despite the appellate court’s finding that the terms of the insurance contract were not facially ambiguous, i.e., patent, the terms of the policy were latently ambiguous.
The appellate court held:
However, the basic undisputed facts agreed to by the parties demonstrate the existence of the alleged latent ambiguities in the terms of the contract. Specifically, based on the undisputed fact that a large amount of water flowed from the pipe over time, the meaning of the contractual terms of “seepage” and “sudden” are less than clear. Additionally, the relevant facts regarding the cause of the escaped water — whether it escaped as an escalating leak or as a burst that continued at a constant rate — remain at issue. Because these “latent ambiguit[ies] affecting a disputed contract provision” existed, “there necessarily [existed] a disputed issue of material fact.
This is a great holding for Florida’s policyholders. I appreciate the Second District’s application of the definition for “sudden” meaning unexpected, and how that “unexpected” event may occur over a period of time and still be covered under the policy, if a trier of fact determines such.
1 Price v. Castle Key Indemnity Co., No. 2D13-1809, (Fla. 2d DCA Sept. 3, 2014).