Freezing Exclusions: One Size Does Not Fit All

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).

Broken Pipe During Polar Vortex: Don’t Let Your Policy’s “Freezing Exclusion” Leave You Uncovered for Losses From Arctic Cold

Paul LaSalle | Property Insurance Coverage Law Blog | February 2, 2019

Most property insurance policies exclude coverage for damages caused by the freezing of household systems or appliances unless the insured used reasonable care to maintain heat in the building or shut off the water supply and drained all systems and appliances of water. Courts interpreting the “freezing exclusion” have generally found that the language within the policies is clear and enforceable.

At least one federal court,1 however, has acknowledged that in the nature of insurance coverage decisions, which must be made on a case-by-case basis, it is impossible to define what constitutes “reasonable care” to “maintain heat” in any one situation. That court, interpreting New Jersey law, ultimately construed the terms of the policy’s freezing exclusion by their ordinary terms as follows: an insured individual would not be excluded from coverage for losses caused by freezing if they took objectively reasonable steps, i.e., steps an ordinary person in his position would have taken, to ensure that the temperature in their home remained above freezing.

In a more recent case also interpreting New Jersey law, a court declined to dismiss an insured’s breach of contract complaint after a motion to dismiss was filed by the insurance company, ruling that it was premature before any fact or expert discovery had taken place to resolve the factual issue of whether the insureds had adequately maintained heat at the property.2 This case is noteworthy because the court refused to consider the insureds’ testimony from the insurance company’s Examination Under Oath (“EUO”) in support of the insurance company’s motion at that initial stage of the litigation-thereby giving the insureds an opportunity during the ensuing litigation to prove they had taken reasonable steps to maintain the heat at the property.

In closing, please try to stay warm during these dangerously cold temperatures!
_______________________
1 Dooley v. Scottsdale Ins. Co., No. 12-1838, 2015 WL 685811 (D.N.J. Feb. 18, 2015).
2 Petcove v. Pub. Serv. Elec. & Gas, No. 18-9709, 2019 WL 137652 (D.N.J. Jan. 8, 2019).

Freezing Exclusion – What Does It Really Mean to Use Reasonable Efforts to Maintain Heat in the Building?

Christina Phillips | Property Insurance Coverage Law Blog | May 2, 2018

Whether residential or commercial, most property coverage policies exclude loss caused by freezing, unless the insured either:

  1. Uses reasonable or best efforts to maintain heat in the building; or
  2. drains the plumbing lines. Application of this freezing exclusion, however, often turns on interpreting or defining what the terms “reasonable,” “best efforts,” and “building” mean.

Many multi-unit residential or mixed use commercial buildings do not define the phrase “building” to include each individual unit or commercial space. So, what happens if heat is maintained in the first-floor commercial area, but not in the second or third-floor residential area and a pipe freezes in the third-floor causing water damage? Is the loss covered? I had this exact situation arise several years ago and presented the issue to a jury. It was undisputed that the loss had been caused by the freezing of a plumbing line and the water had not been drained from the lines. However, the insured had maintained heat in the first-floor commercial area of the building. I argued to the jury that the insured had complied with the policy and maintained heat in the building, alternatively arguing that the policy was ambiguous on whether the policy required heat be maintained in each floor of the building. The insurer argued that the insured failed to comply with the policy and that he did not use reasonable efforts where heat was not maintained in each floor of the building. Ultimately, the jury returned a verdict in favor of the insured.

While most policies continue to use similar language in the freezing exclusion, some policies now are including Protective Safeguard Endorsements related to the maintenance of heat. One such example is found in the case of 455 Companies, LLC v. Landmark American Insurance Company.1 There, the policy contained a Protective Safeguard Endorsement which provided that as a condition of insurance, the insured was required to maintain heat at 55 degrees. The insured moved for summary judgment, asserting that the policy excluded coverage for water damage only if the defendant could show the insured failed to use “best efforts” to maintain heat above 55 degrees. The trial court disagreed with the insured’s interpretation finding that coverage did not turn on whether the plaintiff used “best efforts” to maintain the building’s temperature. Rather, the court found that the protective safeguard endorsement was not ambiguous and any conflict between the terms of the endorsement and the form provisions would be resolved in favor of the endorsement. The policy’s requirements of “best efforts” was trumped by the Protective Safeguard Endorsement which required that heat be maintained at or above 55 degrees.

The Protective Safeguard Endorsement is a good example of how an insurer can draft a policy to include specific requirements for the maintenance of heat, or define “reasonable efforts.”
___________________________
1 455 Companies, LLC v. Landmark American Ins. Co., 2017 WL 3215197 (E.D. Mich. July 28, 2017).