When is Water Damage from a Toilet Overflow a Covered Loss?
A while back, I blogged about whether damage caused by a leaky pipe is a covered loss. Because it is the holidays, families and friends gather, and if by chance plumbing comes up as a dinner topic (I hope it does not), I will focus on another everyday plumbing misfortune…the toilet overflow.
When is water damage from a toilet overflow a covered loss? This very issue was reviewed and decided by a California appellate court last week. In the case of Cardio Diagnostic Imaging, Inc. v. Farmers Insurance Exchange,1 the insurance policy issued to the policyholder included a water exclusion that excludes damages caused by “Water that backs up or overflows from a sewer, drain or sump.” The question was whether this exclusion applied to damage caused by a malfunctioning toilet that failed to shut off the intake of water, and because there was a blockage in the sewer line, a toilet overflowed, causing water to leak into the premises. Each party moved for summary adjudication based on the exclusion. Both the trial and appellate court determined that the language of the exclusion was unambiguous on its face and the loss was not covered. One of the principal arguments of the policyholder was that since water overflowed from a toilet rather than a drain then the exclusion does not apply. The court disagreed and reasoned that the toilet was attached to a drain and ordinarily, water that enter the toilet flow through the drain into pipes that lead to the sewer system. Important to the court was the undisputed evidence that the blockage that caused the overflow was in the pipes, about 20 to 40 feet from the toilet. The fact that the toilet may have been defective was not material to the court given the location of the blockage. The court commented that had the blockage been in the toilet itself (before the drain), then it could have reached a different result.
As with all losses, it is important to study the insurance policy and ascertain whether exclusions apply. In the case of a toilet overflow, depending on the wording of any applicable water exclusions, it appears that the location of the blockage is key to deciding whether there is coverage.
1 Cardio Diagnostic Imaging, Inc. v. Farmers Insurance Exchange, et al., 2012 DJAR 16904 (No. B239145, Second Appellate District, Division Four, December 18, 2012).
Dear Mr. Kan:
Hello!
Regarding your sentence:
"....Both the trial and appellate court determined that the language of the exclusion was unambiguous on its face and the loss was not covered..."
I'm going to reach back in my "pro se" knowledge bank and recall that if something is AMBIGUOUS it is CONSTRUED TO THE BENEFIT OF THE INSURED, RIGHT?
Since this was "unambiguous" and, thus, clear, there's no coverage - according to the facts and the Courts' rulings.
SHIRLEY HEFLIN
(Tampa, FL)
Ken,
The warning:
"As with all losses, it is important to study the insurance policy and ascertain whether exclusions apply."
is important.
The title to this post could have been--
"Beware!! Farmers Sells a Stinking Bad Insurance Policy--It Does Not Cover Accidental Overflow From a Toilet."
Shirley-
Yes. In the insurance context and at least in California, the ambiguous language is construed against the party who caused the ambiguity, i.e., the insurance company. Courts generally resolve ambiguities in favor of coverage.
Ken,
This issue is actually much deeper and complex than you have outlined here so far.
If you consider the evolution from Fire Insurance to Property Insurance, you can see how coverage which originally provided for only Fire and Lightening was slowly broadened eventually becoming "All Risk".
The two original named perils of Fire and Lightning were first combined into one, with nine more added – the basis for the HO-1 policy. Add six more and you have the HO-2 "Broad Form" with its sixteen named covered causes of loss. Among these sixteen is "Accidental discharge or overflow of water from a plumbing or fire protective system". As a named peril policy has few, if any exclusions, the toilet overflow in Cardio Diagnostic v Farmers Insurance Exchange would clearly be covered under a standard 16 Named Peril policy.
Rather than continuing to add additional perils to an ever expanding list, Underwriters have chosen to broaden Fire Insurance to Property Insurance by covering "All Risk of Direct Physical Loss or Damage" unless it is otherwise excluded or limited giving rise to the Exclusions wording that we are currently familiar with:
***
"We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
Water
Water that backs up or overflows from a sewer, drain or sump"
***
This exclusionary wording in an all risk policy would indicate that the underwriter wants to exclude coverage for all overflows from all drains – floor, sink, shower, toilet or other.
While I agree with the California Courts that the language on its own is unambiguous, the coverage for this specific circumstance seems to have a confused underwriting intent. It does not make sense that an underwriter would intentionally restrict such a small sliver of coverage while at the same time broadening it in so many other ways.
This is even more striking when you consider that typical HO-3 policies cover the Dwelling on an "All Risk Unless Otherwise Excluded" basis and Personal Property is covered against loss or damage by the 16 Named Perils. It actually becomes possible to DENY coverage for the Dwelling, yet AFFORD coverage to the Personal Property for the same occurrence.
I do not know if this "Confused Intent" argument has ever been ruled on, but if my claim for a toilet overflow was denied (something I have covered hundreds of times) it would definitely be part of my case.
Side Note: A similar situation exists with Arson to a Vacant building. Vandalism (willful and intentional destruction of property) is often excluded in respect of vacant buildings. Being that Arson is a kind of Vandalism, there would be no coverage to a Vacant building for loss or damage from Arson. If that same Vacant building was full of Personal Property covered against the 16 Named Perils, the claim for damage to the building would be denied, but the damage to the personal property is covered as "Fire" is specifically covered, and there are no applicable exclusions.