The recent federal court ruling in Lawrence v. State Farm Fire and Casualty Company 1 shows how the fine print in an insurance policy can entirely undermine the protection that policyholders believe they have purchased. In this Iowa case, Terri Lawrence experienced a catastrophic loss when a burst pipe released over 200,000 gallons of water into her home, ultimately causing the foundation to shift and the property to be condemned. Although the initial cause of damage was a burst pipe, something most policyholders reasonably assume would be covered, State Farm denied her claim, pointing to an earth movement exclusion in the policy.
The court sided with State Farm, finding that the policy’s language, particularly its broad anti-concurrent causation clause and its definition of earth movement “regardless of whether combined with water,” clearly excluded coverage. Even though Lawrence presented expert evidence attributing the foundation damage directly to the effects of the burst pipe, the court held that the specific wording of the policy was controlling.
The court acknowledged that other cases around the country have reached a different conclusion. One of the most notable is Espedito Realty, LLC v. National Fire Insurance Co. of Hartford, 2 a case decided by a federal court in Massachusetts. There, a warehouse floor sank due to a burst pipe releasing a large volume of water. The insurer denied coverage under an earth movement exclusion similar to the one at issue in Lawrence. However, the court in Espedito rejected that denial, reasoning that “[i]t is hardly intuitive that an ‘earth movement’ exclusion would bar coverage for the homely situation where a pipe bursts and a floor sinks as a result.”
The judge wrote that “[n]o objectively reasonable insured reading the policy would think so,” especially where the exclusion referred vaguely to “water flowing underground.” The court ruled that the exclusion did not unambiguously apply to a sudden, accidental internal water release, like a burst pipe, and therefore ruled in favor of the policyholder.
But the policy language in Lawrence included the very detail that was missing in Espedito. This change in the small print of the policy made all the difference. Somebody at State Farm decided to include in the policy language which defined “earth movement” as “the sinking, rising, shifting, expanding, or contracting of earth, all regardless of whether combined with water.” (Emphasis added) That phrase, “all regardless of whether combined with water,” was highlighted by the court as the deciding factor.
The court found that State Farm expressly contemplated in its insurance contract that earth movement, even if caused by or accompanied by water, would be excluded. Even more, the policy contained an anti-concurrent causation clause that denied coverage “regardless of whether other causes acted concurrently or in any sequence with the excluded event to produce the loss.” In other words, even if the covered peril (burst pipe) caused the excluded peril (earth movement), the loss was still excluded.
This decision illustrates the increasingly sharp divide between how insurance is sold and marketed and how it is enforced in the claims process. State Farm, like many large insurers, invests heavily in emotional advertising campaigns that portray the company as a trusted protector and “good neighbor” in times of need. However, these marketing narratives rarely align with the technical limitations and exclusions buried in the language of the policy contract.
Consumers are not insurance professionals. They are not typically presented with a side-by-side comparison of policy exclusions, nor are they warned that some policies, particularly those advertised at lower premiums, may fail to pay for common catastrophic losses. The industry is well aware that few consumers ever read or understand the exclusions that can gut their coverage, especially in high-stakes situations like foundation collapse following water intrusion.
What this case exposes is the fundamental mismatch between public perception of what insurance provides and the actual risk-limiting mechanisms insurers use to reduce payouts. When policyholders suffer life-altering losses only to discover that their coverage is riddled with caveats and exclusions, they feel betrayed and for good reason. Trust is eroded not just in a single insurer, but in the entire concept of insurance as a reliable safety net.
The promise sold is emotional, reassuring, and immediate. The product delivered is technical, complex, and often hostile to coverage.
This disparity, when claims are denied, breeds cynicism, particularly when courts then enforce exclusions that are legal in form but at odds with the reasonable expectations of consumers without warning, other than “you should have read and understood your contract.” Fat chance anybody would catch the fine distinction between the two cases and policy wording described above, except my insurance coverage nerd friends, who routinely read this blog.
Insurance companies benefit enormously from the emotional appeal of their advertising while insulating themselves with policy language that shifts the burden onto the consumer to anticipate every excluded peril. They do not disclose, at the point of sale and in any advertising, that foundation damage due to a burst pipe will not be covered, even though such damage is foreseeable and a common risk. They do not warn that policies with lower premiums may come with higher financial risk in the event of a loss. The result is a market that rewards opacity and penalizes trust.
The lesson from this case is clear. Cheap insurance can turn out to be the most expensive when disaster strikes. Furthermore, buying based on commercials that play on neighborly goodwill, sentimental themes, and emotion is no substitute for understanding the bait-and-switch that is truly going on. The advertising from most insurance companies may be emotional, but the current mass advertising in the insurance business is grounded on profits and containing costs.
Until the industry is compelled to adopt more transparent disclosure practices and regulators require clearer warnings about critical exclusions and side-by-side comparisons, policyholders will continue to suffer from the illusion of coverage. An illusion that collapses precisely when they need protection the most, and destroying the good will the insurance industry needs.
Thought For The Day
“What you’re really selling is a feeling, not a product.”
— Seth Godin
1 Lawrence v. State Farm Fire & Cas. Co., No. C24-4008 (N.D. Iowa June 25, 2025).
2 Espedito Realty, LLC v. National Fire Ins. Co. of Hartford, 849 F.Supp.2d 179 (D. Mass. 2012).
