The following coverage case note summarizes a decision rendered last week in Florida. Even for a practitioner constantly involved with insurance coverage disputes, it is hard to follow the entire logic of the Court’s reasoning. I doubt those outside the law will find the decision very helpful, unless they want to become brained tired and desire sleep.
What is apparent to one reading all risk policies for nearly three decades is the ever changing language drafted by insurers which increasingly limits coverage through broadening exclusionary language. Early all risk policies would have covered most of Ms. Liebel’s damage. As indicated here, only part of the damage is covered.
I indicated in a comment to a post, Nationwide Insurance Commercial Customers Should Check Their Policies for Dependent Property Lost Income Coverage:
Even if the Nationwide Underwriters reduce the Coverage, it may have no impact on customers of Nationwide since they have not been getting paid for it in the past. Maybe they will have to start paying it more as a result of greater awareness by public adjusters, adjusters, and customers.
Nationwide has made many changes to its policy forms limiting coverage. For example, many Nationwide commercial policyholders now have to fight much harder to get paid for water damage because of small wording changes to its policy which other insurers do not have in their policy.
In my opinion, insurers should not be advertising about "full protection" when their policies are not providing for it or their adjusters are not trying to make that happen after the loss occurs.
As the Liebel case demonstrates, Nationwide residential policyholders are having the same problem. But it is not just with Nationwide. I raised this point in Is the State Farm Policy Really Worth Anything?:
What is the value of insurance if it does not pay for insured losses? Imagine if you had a significant accidental water damage to your home or business, do you know whether your insurance company has your back? Will it really be there to help you? Don’t count on it. Today, modern insurance companies are re-writing their insurance policies to limit what is covered and excluding many losses that used to be covered under all-risk policies. State Farm, as an insurance industry leader, is leading the charge of making an insurance product that no consumer should trust as providing the amount of coverage the insurance product afforded 25 years ago. It is always important to remember that Policyholders Buy Insurance for Peace of Mind and Not Economic Advantage and that concept is being defeated as carriers try to gain economic advantage by changing small print in the policy that may have significant consequences discovered by the policyholder only after disaster happens. To be Fair And Balanced with State Farm, I could have substituted Allstate, Nationwide and USAA into the title.
It is apparent that most policyholders are being sold a defective insurance product. It promises coverage on a broad basis, but there is no peace of mind that many catastrophes will be covered. The following case is just another example of this fact. Until Departments of Insurance wake up to the idea that a minimum all risk policy needs to be mandated in the same manner the standard fire policy was early in the last century, the all risk insurance product will continue to erode from what it first covered over fifty years ago.
— So.3d —-, 2009 WL 3189332
Fla.App. 4 Dist.,2009.
On February 14, 2003, Liebel noticed a wide gap between the floor and the wall in her living room. Over the following two and a half weeks, Liebel’s living room floor began to sag and bend, and then every room of the home detached from the walls, and a wide crack formed in the middle of the living room. It turned out that the crack was caused a ruptured water line under Liebel’s home, and the escaping water caused the soil beneath the home to erode, causing the foundation to settle, and the damage to Liebel’s home. Liebel sought coverage for the damage under her all-risk homeowner’s insurance policy with Nationwide.
Nationwide was not on Liebel’s side. Nationwide denied coverage for the damage, alleging that the loss was specifically excluded by the following exclusions in the policy:
1. We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another cause or event contributed concurrently or in any sequence to cause the loss.
a) Earth Movement and Volcanic Eruption. Earth movement means: earth movement due to natural or unnatural causes, including mine subsidence; earthquake; landslide; mudslide; earth shifting, rising or sinking (other than sinkhole collapse). Volcanic eruption means: eruption; or discharge from a volcano.
* * *
3. We do not cover loss to property described in Coverages A and B resulting directly from any of the following:
* * *
e) Continuous or repeated seepage or leakage of water or steam over a period of time from a heating, air conditioning or automatic fire protective sprinkler system; household appliance; or plumbing system that results in deterioration, rust, mold, or wet or dry rote [sic]. Seepage or leakage from, within, or around any shower stall, shower tub, tub installation or other plumbing fixture, including their walls, ceilings or floors, is also excluded.
Liebel argued that the loss was covered based upon the following provision of the policy:
If loss caused by water or steam is not otherwise excluded, we will cover the cost of tearing out and replacing any part of the building necessary to repair or replace the system or appliance. We do not cover loss to the system or appliance from which the water or steam escaped.
f) (1) wear and tear, marring, deterioration;
If any items f)(1) through (7) cause water to escape from a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance, we cover loss caused by the water not otherwise excluded. We also cover the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. We do not cover loss to the system or appliance from which the water escaped.
Under exclusions 3.a) through 3.f), any loss that follows is covered unless it is specifically excluded.
In deciding the case, Florida’s Fourth District Court of Appeal explained the classic rules of insurance policy interpretation. In Florida, insurance contracts are interpreted according to the plain language of the policy. However, if the terms of a policy are amenable to two or more reasonable interpretations, one that provides coverage and one that does not, the policy is considered ambiguous. Ambiguous coverage provisions are interpreted against the insurer that drafted the policy and in favor of the insured. Further, the Court noted ambiguous “exclusionary clauses are construed even more strictly against the insurer than coverage clauses.” The Court also noted the failure of a policy to define a certain term does not make the policy ambiguous; when the insurer has not defined a term, the common definition prevails.
Applying these rules to the policy, the Fourth District held that the plain and unambiguous language of the policy’s earth movement exclusion excluded from coverage the damage to Liebel’s home. The policy specifically excluded “loss to any property resulting directly or indirectly” from “earth movement due to natural or unnatural causes.” “Earth movement” included “earth shifting, rising, or sinking.” Liebel, 2009 WL 3189332 at *4. As the loss to Liebel’s home was caused by the shifting of earth under the home, which was caused by earth shifting from unnatural causes, the water line rupturing, the loss was specifically excluded from coverage.
However, the Court agreed with Liebel’s contention that the cost of repairing the water line was covered by the policy. Because the policy stated that it did not cover damage caused by water from a plumbing system that was otherwise excluded, but then stated that it covered the cost of repairing a system that caused water damage, the policy was ambiguous because there were two reasonable interpretations of the provisions.
Specifically, one may interpret the “otherwise excluded” language to preclude coverage for all damages caused by a matter otherwise excluded, including the cost of tearing out and replacing any part of Liebel’s home necessary to repair the ruptured water line. In contrast, a reasonable person could interpret the Policy to exclude from coverage the damage caused by earth movement, but include the cost of repairing the water line that caused the loss, as it is a plumbing system that caused water damage due to its deterioration from wear and tear.
Liebel, 2009 WL 3189332 at *6. Following the principle that ambiguities in insurance contracts are construed in favor of the insured, the Court held that the cost of tearing out the floor and repairing the water line was covered by the policy. The Court noted that this finding was supported by the principle that an all-risk policy covers a loss unless that loss is specifically excluded; the policy did not specifically exclude the cost of repairing a plumbing system from coverage, it only specifically excluded damage caused by earth movement.