My Insurance Claim Was Denied Because My Water Leak Lasted Over a Period of 14 Days or More – Was the Denial Proper?

Marie Laur | Property Insurance Coverage Law Blog | March 13, 2018

Many property insurance policies have a provision that states something similar to the following: “we do not insure…for loss…caused by…constant or repeated seepage or leakage of water…over a period of 14 or more days.” Insureds may find their claims for water loss under their homeowners’ policy denied on the grounds that the leak was present for a period of two weeks or more. However, Florida courts have ruled that the first thirteen days of damage may be covered, due to ambiguity in the language of the policy.

In Hicks v. American Integrity Insurance Company,1 the court ruled that the policy language did not preclude coverage for damage caused during the first thirteen days of a leak. In Hicks, the insured was out of town when the leak occurred, and he did not discover it until he returned to the property weeks later. He filed a claim under his “all-risks” policy with American Integrity Insurance Company of Florida (“American Integrity”), but his claim was denied based on American Integrity’s expert opinion that the leak had been present for five weeks or more. The insured sued American Integrity for breach of contract. The insured provided a report prepared by a forensic general contractor that reflected the amount of damage that was believed to have been caused within the first thirteen days of the leak. The trial court ruled in favor of American Integrity, stating to the insured, “basically, you’re asking [this court] to say whether the policy covered the loss in the first 13 days…It might, but I’m not so sure that the time frame of these particular facts would allow for that determination.”2

The insured appealed the trial court’s determination, and the appellate court reversed, stating that an insurance policy excluding losses caused by constant or repeated leakage or seepage over a period of fourteen days of more did, “not unambiguously exclude losses caused by leakage or seepage over a period of thirteen days or less.” Since ambiguous language in insurance policies is interpreted in the light most favorable to the insured, it must be interpreted in favor of coverage for the loss. The appellate court further remarked that once an insured demonstrates that a loss is within the policy terms, the burden shifts to the insurer to prove that a loss arose from an excluded cause.3

The appellate court instructed the trial court to enter partial summary judgment in favor of the insured on the sole issue of coverage within the first thirteen days of the leak, with the extent of the damage to be determined at trial. The appellate court also determined that for damage occurring after the first thirteen days, the burden was placed on American Integrity to prove that specific damage was sustained after the thirteenth day, and therefore excluded by the language of the policy.

Similar determinations have been reached in factually similar cases. Insureds should read their policies carefully, as a denial for a loss may not be proper.
1 Hicks v. American Integrity Ins. Co., No. 5D17-1282 (Fla. 5th DCA Feb. 23, 2018).
2 Id. at 3.
3 Id. at 4.

Absent a Specific Definition, Leakage Generally Refers to Low Volume or Gradual Event

Kesha Hodge | Property Insurance Coverage Law Blog | January 15, 2018

Water damage from a broken water supply line is one of the most frequent homeowner’s insurances claims. Quite often, an insurance carrier will assert there is no coverage for the resulting damage by citing to a “leakage” exclusion. In one such instance, while the policyholder was living in Ohio, the water line separated from the wall in an upstairs bathroom in his Michigan home causing a significant amount of water to flow into his home for 27 days.1 The carrier denied any coverage based on this exclusion:

1. “We” do not insure “physical loss” caused by:

* * *

h. Constant or repeated seepage or leakage of water or the presence or condensation of humidity, moisture or vapor, over a period of weeks, months or years unless such seepage or leakage of water or the presence or condensation of humidity, moisture or vapor and the resulting damage is unknown to all “insured” and is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure.

The insurance policy did not define the term “leakage” or “seepage.” The parties were unable to resolve their differences and the matter proceeded to litigation.

The trial court explained that “seepage” and “leakage” were more akin to a slow release of a small amount of water consistent with “humidity, moisture and vapor” and reasoned that weeks, months, or years were the periods of time it would take for a small discharge of water to cause damage. The appellate court agreed and likewise concluded that the commonly used meaning of “leak” refers to a gradual or low volume water event. The appellate court explained:

For the exclusion to apply, the “leakage” or “seepage” is required to be “constant” or “repeated” “over a period of weeks, months or years.” This time requirement of weeks, months, or years is necessary for a low volume gradual water “leakage” or “seepage” to cause significant damage to a home. As the trial court found, the terms of the exclusion demonstrate [the insurance carrier’s] intent to avoid coverage for losses that are caused by a homeowner’s neglect, failure to maintain, and failure to occupy a home.

The appellate court concluded that the exclusion did not apply because the amount of water that was released into the policyholder’s home would have caused significant damage within hours or days because the separated pipe essentially caused flooding.

While each case has its own distinct facts, if there are concerns about the denial of a water-related or other type of claim, policyholders should seek the advice of a competent professional.
1 Cincinnati Ins. Co. v. Kaeding II, No. 332559, 2017 WL 3090600 (Mich. App. July 20, 2017).

Is Water Damage Caused by a Burst Water Main Covered?

Edward Eshoo | Property Insurance Coverage Law Blog | December 7, 2017

An Illinois homeowner recently contacted me regarding an insurer’s denial of a water damage claim. The facts were: An underground pipe which was part of a municipal water supply system (“the water main”) burst and water was released from the water main. The pressure from the water cracked the street pavement and water flowed onto the pavement, travelled across the pavement, and then down the sloped driveway leading into the garage of the insured dwelling. Ultimately, the water flowed into the lower level of the home, damaging building materials and personal property.

The insurer denied the claim based on a policy exclusion for loss caused by water damage. The sources of excluded water the insurer pointed to were:

  1. “flood”
  2. “surface water” and
  3. “water below the surface of the ground”

All were undefined terms in the policy.

In my opinion, the denial was erroneous, and the water damage should be covered for the following reasons.

First, the plain and ordinary meaning of the term “flood” is “a rising and overflowing of a body of water that covers land not usually under water.”1 The flood exclusion does not apply because the water did not escape from a body of water.

Second, the plain and ordinary meaning of the term “surface water” is “water derived from natural precipitation that flows over or accumulates on the ground without forming a definite body of water or following a defined watercourse.”2 While it flowed on and along the street pavement, the water did not accumulate from a natural source, such as rainwater or runoff from a storm. Rather, it originated from an artificial or man-made source, an underground water main, rendering the “surface water” exclusion inapplicable.3 In that regard, the water damage exclusion in the policy did not state it applied regardless of the source of the excluded water; or, regardless whether the excluded source of water was caused by an act of nature or otherwise caused, distinguishing it from other insurer “water damage” exclusions utilized in the property insurance industry.4

Finally, absent such language described above, courts have interpreted the term “water below the surface of the ground” to have the general meaning of “subterranean waters” i.e., underground bodies or streams of water flowing in known and defined or ascertainable channels or courses, and waters which ooze, seep, or percolate through the earth, or which flow in unknown or undefined channels, both categories of which are waters of natural origin.5 Since it does not include water from an artificial source like a water main, the “water below the surface of the ground” exclusion is not a bar to recovery.6
1 Park Ridge Presbyterian Church v. Am. States Ins. Co., 2014 WL 4637433, *5 (N.D. Ill. Sept. 17, 2014).
2 Smith v. Union Auto. Indem. Co., 323 Ill.App.3d 741, 749 (2001).
3 See Ebbing v. State Farm Fire & Cas. Co., 1 S.W.3d 459 (Ark. App. 1999); Popkin v. Sec. Mut. Ins. Co. of N. Y., 367 N.Y.S.2d 492 (N.Y. App. Div. 1975); Ferndale Dev. Co., Inc. v. Great Am. Ins. Co., 527 P.2d 939 (Colo. App. 1974).
4 See ISO Endorsement CP 10 31 08 08. Although this Endorsement gives an example to which the “otherwise caused” language applies – a dam, levee, seawall, or other water boundary or containment system failing in whole or in part – it would not apply to a burst or ruptured water main, which is a pipe or conduit for conveying water, as opposed to a water boundary or water containment system.
5 See Adrian Assocs., General Contractors v. Nat’l Sur. Corp., 638 S.W.2d 138 (Tex. App.1982).
6 But see Carver v. Allstate Ins. Co., 76 S.W.3d 901 (Ark. App. 2001) (policy excluded loss caused by “[w]ater or any other substance on or below the surface of the ground, regardless of its source,” reflecting an intent to exclude damage from both natural and artificial water sources).

Water Damage Loss Time Limits and Hidden Damage—What Do Insurers Promise to Departments of Insurance?

Chip Merlin | Property Insurance Coverage Law Blog | June 26, 2017

I spoke about water damage loss at the National Association of Public Insurance Adjusters Annual Convention last week. One issue I discussed was the time limits of water damage. A recent post, Avoiding Denials of Water Damage Claims Based on “Long Term Damage Exclusions” also discussed the issue.

Following my presentation, Lorinda Mikesell, the Vice President of the Texas Association of Public Adjusters, asked whether such time frames are effective when water damage is hidden.. Lorinda said that at least one insurer promised to cover water damage despite the time limitation if the loss was hidden, and she sent me the following Texas Department of Insurance Order which stated:

“USAA has indicated how it intends to adjust a covered water claim if mold is present on the damaged covered property. USAA has represented to the Department that even though its Homeowners policy and Condominium Unit Owners policy excludes loss caused by or consisting of mold, mold is necessarily removed or treated in the process of repairing damage resulting from a covered water loss. Mold that is present upon water damaged materials will be removed in the course of repairing the covered water loss. Expenses which are related solely to the existence of mold are the only expense which would not be covered in the course of repair of a covered water damage claim. In addition, notwithstanding the exclusion for constant repeated seepage or leakage of water or steam over a period of weeks, months, or years, USAA agrees to cover the cost of reasonable and necessary repair of direct physical damage to the dwelling or property caused by a covered water loss that is hidden or undetected and the associated direct physical damage consisting of mold, fungi, or other microbial damage to the dwelling or property, provided the insured reports the loss within thirty days of the date the damage was or should have been detected. This would not cover the cost of remediation, testing, loss of use, or debris removal. Remediation means to treat, contain, remove, or dispose of mold, fungi, or other microbes beyond that which is required to repair or replace the covered property physically damaged by water or steam.”

(Emphasis added)

I often say that I learn more when speaking at conferences than an audience may learn from my presentation. I was not aware of this “promise” by USAA, and I am thinking of how we may ask insurers in discovery for similar filings with Departments of Insurance that explain the language used in policies. I wonder if USAA has this promise explained in writing to their claims adjusters.

Court Denies Insurers’ Motions for Summary Judgment Under All Risk Policies

Tred R. Everly | Insurance Law Hawaii | May 22, 2017

The federal district court found that the insurers could not escape coverage by summary judgment under their all risk policies. Eagle Harbour Condo Ass’n v. Allstate Ins. Co., 2017 U.S. Dist. LEXIS 54761 (W.D. Wash. April 10, 2017).

Eagle Harbour Condominium Association sued several of its insurers who denied coverage for hidden water damage. Various insurers provided coverage from 1988 to 2015.

The Association asserted that wind-driven rain and inadequate construction allowed water to penetrate the buildings’ sheathing and framing, causing decades of deterioration and decay, until the damage was exposed to view in August 2014. The insurers claimed that the loss resulted from poor decisions in constructing and inadequately maintaining a stucco building in the wet and windy Pacific Northwest. The Association argued that the policies did not explicitly exclude damage caused by wind-driven rain, so there was coverage.

The Association identified four possible efficient proximate causes for its loss: inadequate construction, wind-driven rain, repeated seepage of water, and rot or deterioration. The insurers argued that it was unnecessary to analyze the loss under the efficient proximate cause because no covered peril could have caused the loss. The policies did not cover inadequate construction, wear and tear, rot or deterioration, or repeated seepage of water. The Association countered that wind-driven rain was a distinct and fortuitous peril that none of the policies excluded.

The court noted that if the predominant cause of the loss was a question of material fact – such as when multiple perils combined to cause insured’s damage and at least one but not all were covered – the question of which peril constituted the proximate cause was left to the fact finder.

The policies excluded “repeated seepage of water.” They also excluded specific losses sustained by weather, so long as the weather event worked with an act of law, earth movement, power failure, and other specifically listed events. Rain, not acting with the listed exclusions, was therefore covered, so long as it did not leak into the property for over 14 days in duration.

Deterioration did not engulf the perils of weather and repeated water seepage either. The policy excluded coverage for deterioration, but not for weather and repeated water seepage.

The insurers also argued that wind-driven rain was not a fortuitous peril on Bainbridge Island, where rain was common. Therefore, the losses it produced were uncovered. But whether the Association knew hidden damage from wind-driven rain would occur was a question for the jury.

Consequently, the insurers’ motions for summary judgment were denied.