Is Duct Work Considered Part of a Home’s Air Conditioning “System”?

Iris Kuhn | Property Insurance Coverage Law Blog | June 3, 2018

Certain types of water damage are likely to fall under a water exclusion clause such as damage caused by flood, tsunami, standing water, groundwater and drain or sewage backup. Despite these categories, disputes often arise whether damages caused by water are covered under the standard homeowner’s policy. The type of water damage that may be covered depends on the source of loss, the policy, and if the water loss is accidental and sudden or gradual.

Florida’s Eleventh Judicial Circuit recently confirmed that the loss caused by excess humidity and moisture originating in home’s duct system was subject to the endorsement excluding losses caused by discharge or overflow of water from within an air conditioning “system.”

In Venisse v. Federated National Insurance Company,1 the insured reported water damage to his home as a result of a leaky duct work. Federated National Insurance Company (“Federated”) denied coverage arguing that the water damage exclusion endorsement unambiguously excluded coverage for the loss.

The policy stated:

SECTION I- EXCLUSIONS

* * *

1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

* * *

WATER DAMAGE EXCLUSION ENDORSEMENT

* * *

C. Water damage, meaning:

(5) Discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance;

The insured asserted that the moisture was caused by condensation as a result of a failed leaking duct system, therefore, the resulting water damage was a loss otherwise covered under the policy. Federated argued that the water damage was nonetheless excluded because it originated in the air conditioning system.

The insured contended that the failed leaking duct system that caused the condensation within the roof, is not part of the air-conditioning system because the duct system is a set of tubes that distributes air and is part of the air distribution system. In other words, the duct system and the air conditioning system are completely separate because one distributed the air while the other conditioned it.

The issue on coverage then focused on whether the duct work, which was the source of the leak, condensation, or dispersion of either cold or hot air, is part of the air conditioning “system” for the purpose of the water damage exclusion. The court went on to conclude that a “system” is generally defined as “a complex unity formed of many often diverse parts subject to a common plan or serving a common purpose.”2 It further found that the duct work is an integral part of a unit which serves a common plan or purpose; namely to disburse cooled air (or) hear from the air conditioning unit to the rooms in the house.

Though the word “system” is not defined in the Federated policy, the court concluded the lack of definition did not render an ambiguity as duct work is undoubtedly part of the air conditioning system. Therefore, the water loss was subject to the provisions of the Water Damage Exclusion in a situation such as this one.

It is often difficult to comprehend why a claim is denied. As an insured it is always important to read the insurance policy to confirm you have obtained the best insurance for your needs. Finally, inquire about extra coverages you can add that may be useful to you.
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1 Venisse v. Federated National Ins. Co., No. 15-15478 (Fla. 11th Cir. Ct. Jan. 19, 2018).
2 Citing Sch.bd. of Escambia County v. State, 353 So. 2d 834 (Fla.1977). See also Webster’s Third New International Dictionary (unbar. 1960).

Water Loss Resulting From Pipe Failure Not Excluded by Policy Language

Marie Laur | Property Insurance Coverage Law Blog | April 26, 2018

The Eleventh Circuit Court of Appeals recently ruled that a policy’s exclusionary language did not apply to an insured’s previously denied water loss.

In the case, Cameron v. Scottsdale Insurance Company, the insured, Ken and Michelle Cameron (“the Camerons”), suffered a loss to their residential rental dwelling when a pipe in the plumbing system collapsed, causing water to overflow from the kitchen sink drain and damage the dwelling. The pipe damage was due to age-related failure. The Camerons filed a claim with their insurance company, Scottsdale Insurance Company (“Scottsdale”), which ultimately denied the claim based on exclusionary language in an endorsement to the insurance policy.

The Camerons brought suit, arguing that the water damage was covered by the policy language which provided coverage for a loss caused by, “accidental discharge or leakage of water…as the direct result of the breaking apart of cracking of a plumbing…system…that is located on the described premises.” Scottsdale claimed that the damage was excluded based on the policy’s water exclusion endorsement. The endorsement excluded damage caused by water that overflowed from a sewer or drain.

The U.S. District Court for the Southern District of Florida held1 that the water was caused by a drain backup, and therefore, the plain language of the endorsement applied. Accordingly, Scottsdale’s Motion for Summary Judgment was granted.

The Camerons appealed, and the 11th Circuit Court of Appeals agreed with the Camerons’ assertion2 that the policy’s exclusionary language did not apply because the loss was originally caused by the deterioration of the pipe, which then lead to the drain’s overflow. Since the loss was caused by the plumbing system failure, it was covered under the policy.
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1 Cameron v. Scottsdale Ins. Co., No. 16-cv-21704 (S.D. Fla. Mar. 28, 2017).
2 Cameron v. Scottsdale Ins. Co., No. 17-11907 (11th Cir. April 16, 2018).

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.
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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.
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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
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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).