Policyholder representatives are noticing more water loss claims denied—even though similar claims with the same policy language were paid a couple years ago. Water loss claims are probably one of the most common, aside from large catastrophes like hurricanes, so this trend is disturbing. Florida’s Third District Court of Appeal issued an opinion finding coverage for a policyholder in a typical water loss claim.1 The facts of the case are quite familiar.
The Cheethams filed a claim with their insurer, Southern Oak, after they sustained water damage to their home. After Southern Oak denied the claim, the Cheethams filed suit, claiming the loss was covered by their all-risk homeowners insurance policy. In response, Southern Oak argued the “Water Damage” exclusion, specifically section A.3.b., excluded the loss. The Cheethams’ claim proceeded to trial. Due to age and deterioration, a pipe located on the Cheethams’ property broke or collapsed. Debris entered the pipe, forming a blockage, which ultimately caused waste water and material to back up through the blocked pipe and into the home through drains. At the close of the evidence, Southern Oak filed a motion for a directed verdict, arguing the Cheethams’ loss was excluded under the clear terms of the policy. The trial court granted Southern Oak’s motion for a directed verdict finding that the Cheethams’ loss was excluded by section A.3.b. of the policy. The trial court entered final judgment in favor of Southern Oak, and the Cheethams appealed.
The relevant provisions of the policy stated:
HOMEOWNERS 3—SPECIAL FORM
SECTION I—PERILS INSURED AGAINST
A. Coverage A—Dwelling And Coverage B—Other Structures
1. We insure against risk of direct physical loss to property described in Coverages A and B.
2. We do not insure, however, for loss:
a. Excluded under Section I— Exclusions;
c. Caused by:
(6) Any of the following:
(a) Wear and tear, marring, deterioration;
Exception To c.(6)
Unless the loss is otherwise excluded, we cover loss to property covered under Coverage A or B resulting from an accidental discharge or overflow of water or steam from within a:
(i) Storm drain, or water, steam or sewer pipe, off the “residence premises”; or
(ii) Plumbing … system … on the “residence premises ”. This includes the cost to tear out and replace any part of a building, or other structure, on the “residence premises”, but only when necessary to repair the system…. However, such tear out and replacement coverage only applies to other structures if the water … causes actual damage to a building on the “residence premises”.
A. We do not insure for loss caused directly or indirectly by any of the following….
3. Water Damage
Water Damage means:
a. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
b. Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment; or
c. Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure;
caused by or resulting from human or animal forces or any act of nature.
The Third District held paragraphs a. and c. of the water damage exclusion exclude water damage to the residence premises caused by outside forces unrelated to the residence premises’ plumbing system. For example, paragraph a. excludes coverage for water damage caused by “[f]lood, surface water, waves, tidal water, or the overflow of a body of water,” and paragraph c. excludes coverage for water damage caused by “water or water-borne material below the surface of the ground.” Likewise, Court held the water damage excluded in paragraph b. pertains to damage caused by water not originating from the residence premises’ plumbing system even though the water or water-borne material eventually backs up through a pipe and/or drain within the plumbing system of the residence premises.
The Court held the exclusions contemplated by paragraphs a., b., and c. of the water damage exclusion relate to damage caused by water originating from somewhere other than the residence premises’ plumbing system. Because the Cheethams’ loss was caused by the deterioration of a pipe within the plumbing system, which caused water or water-borne material emanating from the residence premises’ plumbing system to back up into the residence premises, the Court held the Cheethams’ loss was covered under the policy. The final judgment entered in favor Southern Oak was reversed and the case was remanded for further proceedings in the trial court.