If you own or rent a home, you will probably experience some kind of property damage caused by water. Water that leaks from pressurized pipes, either in the walls or below the slab, are often the subject of insurance claims. Water can also “back up” and/or escape from a sink or drain. Sometimes the backup is system wide, where water backs up from sewer mains or from overburdened storm drains, and enters everyone’s home on the block. Sometimes a single toilet is just stopped up and overflows. Drains meant to carry water away from the house can get clogged so that water cannot enter the drain.
So just what does your typical homeowner’s insurance policy cover for such losses? As a recent case explained, the answer depends on the wording of the insurance policy and the exact way in which the loss happened.
Let’s start first with the basics. Most policies will cover the sudden and accidental discharge of water that comes out of a pressurized plumbing system. But the policy will not cover the cost of fixing the plumbing itself, as that is considered a maintenance issue and not “damage” intended to be covered by insurance. Most policies exclude water losses that are caused over weeks and months due to seeping or leaking. And most policies do not cover water from the street sewer system that backs up into the homes through non-pressurized lines designed to take water away from the house. But what about damage from water than comes from a plumbing line and cannot go down a drain due to a back up?
On Dec. 18, the 2nd District Court of Appeal published Cardio Diagnostic Imaging, Inc. v. Farmers Insurance Exchange, 2012 DJDAR 16904. The toilet in a commercial tenant’s suite overflowed because the fill valve stuck in the “open” position, and there was a clog in the sewer line 30 to 40 feet from the toilet. The insurance policy contained an exclusion for “loss or damage caused directly or indirectly by … [water] that backs up or overflows from a sewer, drain or sump.” The court was asked, is water that flows into a toilet bowl from the tank, but then flows out of the bowl because it cannot enter the “drain,” a covered event or excluded? The insured argued that the exclusion only applied if water flowed backwards out of the drain or sewer. The court concluded otherwise, saying that the word “overflows” clearly and unambiguously applied when the water was unable to enter the drain because of a clog in the sewer or drain.
The court noted that several out-of-state opinions had concluded that similar exclusions did not apply when the language of the exclusion was different, specifically, when the exclusion referred only to water that “backs up” but did not also use the word “overflows.”
The approach used by Cardio Diagnostic is advantageous to both insurers and insureds for reasons not fully apparent from the opinion itself. When Cardio Diagnostic is compared to some of the cases cited, an unfortunate side effect of a court’s refusal to enforce the language of the policy as written becomes apparent. When exclusions are not enforced as written, insurance companies tend to add new language to the policy to counter theories created to avoid the originally drafted exclusions and limitations. The result can be that the policy covers even less than the insurer had intended to cover in the first place.
For example, the earlier opinion of Penn-America Ins. Co. v. Mike’s Tailoring, 125 Cal. App. 4th 884 (2008), involved water that backed up into the insured’s basement because a sewer line had broken and clogged. The court in Penn-America concluded that “backs up” did not refer only to water flowing backward through the sewer line, citing a dictionary definition stating that “backs up” means “to accumulate in a congested state … .” (Webster’s New Collegiate Dict. (1979) p. 82.).” However, the panel in Cardio Diagnostic apparently relied on the word “overflows,” at least in part, because it did not consider the term “backs up” clear enough.
One of the cases the court distinguished, Dent v. Allstate Indemnity Co., 82 Va.Cir. 836 (2011), had involved yet another version of the exclusion that referred to water that backs up “through” the sewer or drain. There the court said that water that never entered the drain could not be said to be water traveling “through” it. Under the language of the exclusion in Dent, the loss in Cardio Diagnostic would not have been excluded because the water did not back up “through” the drain.
As these cases illustrate, although this type of exclusion has been in many property insurance policies for years, the language of such exclusions is not consistent from one policy to another. Compare Dent (“backs up through”), with Penn-America (“backs up from”) and now Cardio Diagnostic (“backs up or overflows”). Enforcing the language of the policies according to their common and ordinary meaning, as done by the court in Cardio Diagnostic, makes common sense, and will avoid insurers from drafting defensively around legal theories for creating coverage where none was intended.
Mark Marnell is a Principal in Berger Kahn ALC’s Orange County office and specializes in matters involving insurance coverage. He can be reached at firstname.lastname@example.org.