A Slow Water Leak Was Not Covered

Brown v. Mid-Century Insurance Company
(Cal. Ct. of App., 2d Dist.), filed April 2, 2013

KEY FACTS

Leroy and Terrie Brown owned a three-story, split-level home. Around February 18, 2009, the Browns began observing condensation on the windows and on the drywall around the windows. The windowsills had moisture on the walls and mildew on some of the windows and walls. When they cleaned the condensation off the windows, it returned the next day. About a week later, the Browns began noticing mold forming around the inside of their windows and on the walls in the living room and kitchen, “developing everywhere simultaneously.”

The Browns traced the problem to a leak in a hot water line in the slab of their house.

The Browns had a Mid-Century Insurance Company homeowners’ insurance policy. The policy provided first-party property damage coverage for structural damage in the amount of $404,000, with a $1,000 deductible.

The policy stated “[c]overage is dependent upon both the (1) cause of the loss or damage and (2) type of loss or damage.” The policy listed certain types of loss or damage that were not covered, “however caused,” including “loss or damage consisting of, composed of or which is water damage.”

The policy included an “extension of coverage” that provided “limited” water damage coverage “for direct physical loss or damage to covered property from direct contact with water, but only if the water results from…a sudden and accidental discharge, eruption, overflow or release of water…from within any portion of…a plumbing system.”

The policy had certain exclusions to the limited water damage coverage: “A sudden and accidental discharge, eruption, overflow or release of water does not include a constant or repeating gradual, intermittent or slow release of water, or the infiltration or presence of water over a period of time. We do not cover any water, or the presence of water, over a period of time from any constant or repeating gradual, intermittent or slow discharge, seepage, leakage, trickle, collecting infiltration, or overflow of water from any source…whether known or unknown to any insured.”

For mold, the policy stated: “We do not insure loss or damage consisting of, composed of, or which is fungi. Further, we do not insure any remediation.” The policy excluded “loss or damage directly or indirectly caused by, arising out of or resulting from fungi or the discharge, dispersal, migration, release or escape of any fungi…” The policy defined “fungi” as “any part or form of fungus, fungi [or] mold…”

Mid-Century investigated the claim and then declined coverage. Mid-Century’s claim representative explained that the “investigation revealed that the pipe in the wall of the laundry room that runs into your crawl space has been leaking water into your crawl space over a period of time causing condensation and mold growth through out [sic] your home. Unfortunately, this loss is uninsured or excluded from coverage under your policy.” The claim representative determined that “the cause of loss was wear and tear which caused a hole in the pipe, allowing water to leak into the crawl space over a period of time.”

The Browns sued. They alleged that their “home was damaged when a plumbing pipe burst causing Plaintiffs substantial loss.”

Mid-Century moved for summary judgment based on the contention that the damage was caused by a long-term, gradual, incremental discharge or release of water, and not by a sudden and accidental discharge or release of water. And, since the loss was not covered, it could not be liable for “bad faith” for having denied the claim.

The trial court granted Mid-Century’s motion.

HOLDING & REASONING

The Court of Appeal affirmed. It found that Mid-Century had met its burden in moving for summary judgment and that the Browns failed to show the existence of a triable issue of material fact which would necessitate a trial.

The court rejected the Browns’ argument that their expert created a triable issue of fact by stating in his declaration that “the pipe burst suddenly — in a ‘nano-second,’ spraying water in the crawlspace.”

The court reasoned that this testimony did not change the fact that the release of water, even if it commenced with a nano-second “breach in the wall of the pipe,” had occurred over a period of “a month or two” (according to the Browns) or five months (according to Mid-Century). The court explained: “Even if, as [the Browns’ expert] testified, the pipe ‘failed suddenly,’ the water damage according to [him] resulted from hot water “continu[ing] to spray and stream (not drip) out the holes until the water line was shut off.””

The Mid-Century policy did not cover such a “constant or repeating…intermittent or slow release of water,” whether the release was a drip, spray, or stream. Whether the “water leaked or sprayed or streamed out of the hole(s) in the pipe, the water leaked, sprayed, or streamed out constantly and gradually over time. Such a water discharge does not qualify as ‘sudden’ under the plain meaning of the terms of the Browns’ policy.”

Nor, according to the court, did it qualify as “sudden” under California law. “‘Sudden’ has a temporal element and does not mean a gradual or continuous discharge.”

To show the difference between the Browns’ problem and a covered loss, the court noted: “A dishwater hose breaking in mid-cycle, a water heater giving out and flooding a room, or an overflowing toilet, is a sudden discharge of water.” On the other hand, a “spray/stream/leak of water over several months is not.”

As to the argument that the pipe contained the water one moment, but allowed some out the next, the court said: “Such a calculus, however, does not make a gradual release of water sudden.”

Although the Browns recognized that the policy did not include coverage for mold, they argued that their mold damage was covered “because it resulted from direct contact with the abrupt and sudden discharge of water,” and under the efficient proximate cause doctrine the sudden discharge of water produced the condensation and, eventually, the mold.

The court rejected this argument because the efficient proximate cause doctrine provides when a loss is caused by a combination of a covered and excluded risk, the loss is covered if the covered risk was the efficient proximate cause of the loss. There would be no coverage if…the covered risk was only a remote cause of the loss, or the excluded risk was the efficient proximate, or predominate cause. Since the water that escaped from the pipe was not a covered cause of the loss and there was no other cause, the mold was not covered.

ANALYSIS

The court’s opinion treats the policy language as covering a suddenly catastrophic discharge of water, but not a prolonged discharge of water that becomes catastrophic when discovered. Particular policy language has to be carefully construed, along with the facts of each claim.