Brandee Bower – July 23, 2014
A new case was recently handed down regarding earth movement and water damage exclusions. In Wagner v. American Family Mutual Insurance Company,1 a policyholder suspected a water leak in her home. She had her property inspected and found a water pipe was leaking under the slab foundation, eroding the soil beneath her home and causing settlement, cracking of the slab, drywall, and flooring panels. She filed a timely claim with her insurance company and they agreed there was damage, but within two weeks denied her claim.
The insurance company cited several policy provisions regarding coverage exclusions for earth movement and water damage. They argued that the pipe had been leaking for months, and the policy excludes damage caused by “continuous or repeated leakage.”
Plaintiff filed suit requesting declaratory relief and stating claims for breach of contract, statutory damages and bad faith. The district court found the plain language of the policy excluded coverage because the earth movement and water damage exclusions do not cover any loss “caused directly or indirectly” by these events and that the “any resulting loss” exception to restore coverage required damage to result from a separate and independent covered peril. (Example- gasfed fires, a covered peril, that occur after an earthquake, an excluded peril.) The court granted summary judgment to the insurance company and the case was dismissed.
Some pertinent portions of the policy at issue:
PERILS INSURED AGAINST – SECTION 1 – COVERAGE A – DWELLING AND DWELLING EXTENSION
We cover risks of accidental direct physical loss to property described in Coverage A-Dwelling and Dwelling Extension, unless the loss is excluded in this policy.
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EXCLUSIONS –
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3. Continuous or Repeated Seepage or leakage of water or steam from within a plumbing, heating, air-conditioning or automatic fire protection sprinkler system or from within a household appliance which occurs over a period of weeks, months or years.
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6. Other causes of loss:
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e. settling, cracking, shrinking, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings;
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We do not insure for loss consisting of, or 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.
1. Earth Movement, meaning any loss caused by, resulting from, contributed to or aggravated by earthquake; landslide; subsidence; sinkhole; erosion; mudflow; earth sinking, rising, shifting, expanding or contracting; volcanic eruption, meaning the eruption, explosion or effusion of a volcano. This exclusion applies whether or not the earth movement is combined with water or rain.
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9. Water damage, meaning:
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c. regardless of its source, water below the surface of the ground. This includes water which exerts pressure on or flows, seeps or leaks through any part of a building or other structure, sidewalk, driveway or swimming pool.
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However, we do cover any resulting loss to property described in Coverage A-Dwelling and Dwelling Extension not excluded or excepted in this policy.
1 Wagner v. American Family Mut. Ins. Co., No. 13-1438, 2014 WL 2767129 (10th Cir. (Colo) June 19, 2014).