Edward Eshoo | Property Insurance Coverage Law Blog | February 12, 2019
“One size fits all” is a phrase used to describe pieces of clothing or accessories designed to fit all people. Over time, it has been used to refer to anything meant to apply in all circumstances.
Obviously, one size cannot fit all people. The same holds true when it comes to “freezing” exclusions in homeowner’s insurance policies. Not every freezing exclusion is the same. Compare the following two freezing exclusions.
The ISO “Homeowners 3-Special Form”1 excludes loss to the insured dwelling caused by discharge, leakage, or overflow from within a plumbing system or a household appliance caused by freezing unless the insured has used reasonable care to maintain heat in the dwelling or shuts off the water supply and drains all systems and appliances of water.
Allstate Insurance Company’s “Deluxe Plus Homeowners Policy Form AP337” excludes loss to the insured dwelling caused by discharge, leakage, or overflow from within a plumbing system or a household appliance caused by freezing, while the dwelling is vacant, unoccupied, being constructed, unless the insured has used reasonable care to maintain heat in the dwelling or shuts off the water supply and drains all systems and appliances of water.
Neither exclusion applies if the insured has used reasonable care to maintain heat in the dwelling or shuts off the water supply and drains all systems and appliances of water. And, the Allstate freezing exclusion applies only if the loss occurs while the insured dwelling is vacant, unoccupied, being constructed.
The historic low temperatures that recently hit Chicago and the Midwest has resulted in an influx of water damage losses as plumbing pipes break or burst due to a buildup in water pressure caused by freezing water in an adjacent section of pipe. The recent “polar vertex” reminded me of a prior water damage/frozen plumbing loss involving Allstate’s Form AP337. These were the facts.
The insured owned a single-family residential dwelling in the Chicago area. He lived there with his wife. It was their customary place of habitation. It contained their furniture, appliances, household goods, personal items, and other possessions of value and utility. It was their residence.
The insured and his wife also owned a farm in Indiana. They left their residence on a Monday morning in January to travel to their farm to check on the property. They were not intending on staying overnight; but, the weather was bad when they arrived (snow) and they stayed because of concerns with driving on the slick roads.
They returned home five days later and found water damage throughout their dwelling. The home was a little cold inside when they arrived. The insured checked the furnace and it was on. He did not touch the thermostat for the heat before leaving for his farm. It had been set at 68 degrees.
The insured reported the loss to his Allstate agent. Allstate retained an engineer to inspect the insured dwelling, who opined that adequate heat had not been maintained in the dwelling to prevent freezing. Allstate denied coverage for the loss. The denial letter cited to the freezing exclusion, though the letter offered no factual explanation why it applied to this water loss.
Suit was filed against Allstate for breach of contract. Allstate asserted the freezing exclusion as its sole defense, alleging that the insured dwelling was vacant and/or unoccupied at the time of the loss, and that the insured failed to maintain adequate heat in the dwelling to prevent freezing. After some initial exchange of discovery, I moved for summary judgment on the freezing exclusion.
In Illinois, as in most, if not all states, the insured bears the burden of proving that his or her loss falls within the insuring agreement of the insurance policy. Once the insured meets this burden, then the insurer must prove that the loss falls within a policy provision limiting or excluding coverage it if wishes to escape liability for a loss.2
The insuring agreement in its Form AP337 obligates Allstate to pay for sudden and accidental direct physical loss to the insured dwelling except as limited or excluded. The insured’s burden of proof in this case was straightforward and limited. He need only prove that he suffered a sudden and accidental direct physical loss, which he clearly had in the form of water damage to the insured dwelling. The burden shifted to Allstate to prove the applicability of the freezing exclusion. The arguments for why Allstate had not and could not meet this burden were as follows.
First, Illinois courts have defined “vacant” as meaning “generally empty or deprived of contents.”3Because furniture, appliances, household goods, personal items, and other possessions of utility were in the home at the time of the loss, the insured dwelling was not vacant.
Second, Illinois courts have defined “unoccupied” as meaning “no one was living in the dwelling or had actual use or possession of the dwelling at the time of the loss.”4 The insured and his wife owned the insured dwelling. They occupied it continuously since purchasing it. They lived there. It was their customary place of habitation. And, it was their residence. Therefore, the insured dwelling was not “unoccupied” at the time of the water loss.
Although the insured and his wife were away from it for five days, such temporary absence did not render the home unoccupied, as the insured and his wife intended to return home, and they never abandoned or relinquished possession of it during this five-day period.5
Third, the loss was not caused by a frozen pipe. The source of the water loss was a water supply pipe for the second-floor bathroom sink. The insured saw what appeared to be a small film of ice along the back of the vanity sink where the pipe exited. He did not see ice anywhere else in the home. After he turned the water off, the insured noticed that the copper shut-off valve was detached from the water supply pipe. While the insured was not required to prove the cause of the loss to sustain its burden under the insuring agreement, if the water damage resulted from a worn, defective, or deteriorated copper shut-off valve, then coverage would still be afforded for the water damage, as Form AP337 covers direct physical damage from the sudden and accidental escape of water from a plumbing system caused by wear and tear, latent defect, deterioration or mechanical breakdown.
Finally, and alternatively, even if the loss was caused by a frozen pipe and even if the home was vacant or unoccupied at the time of the loss, reasonable efforts were used to maintain heat in the insured dwelling, which the insured did by setting the thermostat for the heat at 68 degrees. However, Allstate’s position – that the insured failed to maintain adequate heat in the dwelling to prevent freezing – was contrary to the express language of the freezing exclusion, which only requires that the insured use reasonable care to maintain heat in the insured dwelling, and not that adequate heat be maintained to prevent freezing. In that regard, even when the temperature is set at a high degree like 68, pipes along exterior walls and in unheated locations still can freeze.
Not surprisingly, Allstate agreed to settle the case before the court ruled on the summary judgment motion. So, when confronted with a freezing exclusion, read it, understand what triggers its potential application, such as vacancy or occupancy, and make the insurer prove the cause of the water loss if there is any doubt as to the exclusion’s application, such as whether the loss was caused by freezing, or by another peril such as mechanical breakdown or latent defect.
1 ISO Form HO 00 03 05 11.
2 Reedy Industries, Inc. v. Hartford Ins. Co. of Illinois, 306 Ill.App.3d 989 (5th Dist. 1999).
3 Lundquist v. Allstate Ins. Co., 314 Ill.App.3d 240, 245 (2nd Dist. 2000).
4 Thompson v. Green Garden Mut. Ins. Co., 261 Ill.App.3d 286, 291 (3rd Dist. 1994).
5 Gash v. Home Ins. Co., 153 Ill.App. 31 (4th Dist. 1890). See also Foley v. Sonoma County Farmers’ Mut. Ins. Co., 115 P.2d 1 (Cal. 1941).