Water Drain: Florida Court Rulings Show Importance of Exclusion Wording

Editor’s note: Insurers report that an increasing share of claims and claims litigation is the result of non-weather water damage. Jacksonville attorney Joseph Mackey, formerly of the Marshall Dennehey law firm and now with Constangy Brooks, shared his recent blog on two recent Florida appeals court decisions that could have an impact on how water claims are handled.

In Geovera Specialty Insurance Company v. Graig Glasser, 4DCA No. 4D20-2001 (2/16/2022),the 4^th District Court of Appeal held that the trial court erred in granting summary judgment in favor of the insured because his claims for water damages were excluded by the applicable water damage endorsement. The 4th DCA reversed and remanded with instructions to grant summary judgment in favor of the insurer.

The insurance contract at issue was an all-risks policy. During the policy period, the insured’s property suffered water damage caused by a sudden bursting of a water pipe within the wall of the guest bathroom. The insured sought coverage for the water damage, and the insurer denied coverage.

This led to the insured bringing a breach of contract lawsuit against the insurer. During the litigation, both parties moved for summary judgment as to the issue of coverage. The trial judge granted the insured’s motion, relying heavily on Cheetham v. Southern Oak Insurance Co., 114 So. 3d 257 (Fla. 3d DCA 2013), and finding that, because the source of the water did not originate from an external source, the water damage exclusion did not apply.

The 4th DCA disagreed. It found that the initial policy’s water exclusion was nearly identical to that in Cheetham. However, in this case the endorsement, which supersedes the initial terms of the policy, was broader than that in Cheetham. In this case, the endorsement excluded water damage, “meaning water in any form…regardless of the source or cause of the loss.” The 4th DCA also disagreed with the trial court’s view that the the differences between the water exclusion provisions in Cheetham and this case were “minor and inconsequential,” and it disagreed with the trial court’s view that the insurance policy at issue still excluded only external sources of water. The 4th DCA held, “[t]o the contrary, the endorsement here excludes damage caused by water in any form . . . regardless of the source or cause of the loss. The insurer’s endorsement language is much broader and expressly excludes damages caused by water in any form, including plumbing system accidents.”

Because the endorsement supersedes the initial policy language, it controls. Therefore, the endorsement modified the water exclusion provision. Furthermore, because the endorsement replaced the definition of “water” with the definition of “water damage” to include “water in any form…regardless of the source or cause of the loss,” the insured’s claim for water damage resulting from the busted pipe was expressly excluded from coverage.

This case is good news for insurers for two reasons. Insurers can remain confident that this particular water damage endorsement does not create an ambiguity but, instead, replaces and supersedes the original language found in the insurance contract. Furthermore, if insurers and insureds contract for and agree to the applicable water damage endorsement at issue in this case, insures should reasonably predict that water damage to the covered property will be excluded from coverage, including any water damage from a plumbing system.

Insurers should also be aware of a recent 5th DCA opinion that dealt with the relationship between tear out costs and a water damage limit of liability endorsement.

In Security First Insurance Company v. Lydia Vasquez and Santos Vasquez, 5th DCA No. 5D20-2528 (2/18/2022), the 5th DCA held the limited water endorsement that provided up to $10,000 in coverage was ambiguous and thus interpreted against the drafter, Security First Insurance Company. Therefore, the $10,000 limit did not apply to the costs related to accessing and tearing out the damaged water pipe.

Once again, the insurance contract at issue was an all-risk policy and during the policy period the insured property incurred physical damage from the discharge or overflow of water from the failure of the cast iron plumbing system. It was undisputed that the failure of the cast iron pipes was caused by wear and tear, deterioration, and corrosion and thus the damage to the pipes themselves were excluded from coverage.

However, the insureds claimed they were owed additional monies for the cost to tear out the corroded cast iron pipes and replace a part of the concreate slab—an action necessary to gain access to the corroded pipes. Security First moved for summary judgment, arguing that the $10,000 water damage limit of liability also applied to the tear out costs, while the insureds contended that the $10,000 limit applies only to water damage to covered property. Ultimately, the trial court granted summary judgment in favor of the insureds and found that the water damage limit did not apply to costs related to tearing out the corroded pipes.

The 5th DCA found that “a plain reading of the limit of liability provision arguably supports the [insureds] argument. The provisions recites ‘[t]he limit of liability for all damage to covered property provided by this endorsement is $10,000 per loss.’ Here, it is undisputed that the part of the concrete slab that needs to be removed was not damaged by the discharge or overflow of water.” (Emphasis added). The 5th DCA reasoned that because the concrete slab was not damaged by water, it fell outside the water damage limitation.

However, the 5th DCA also “acknowledge[d] that the limit of liability provision could reasonably be interpreted to apply to both water damage and tear out costs. After all, it can be reasonably argued that damage to covered property would include tear out costs because the floor slab would clearly be damaged when it was torn out to gain access to the corroded pipes.”

The court also held that because the limit of liability provision on the limited water damage endorsement could reasonably be interpreted in both parties’ favor, and because the ambiguity was created by Security First, the 5th DCA affirmed the trial court’s decision to grant summary judgment in favor of the insureds and afford the highest level of coverage for the tear out costs.

It should be noted that one critical distinguishing fact between Glasser and Vasquez is it appears the insurance contract in Vasquez did not have the water exclusion endorsement at issue in Glasser. One could argue that the “broader water exclusion endorsement” in Glasser—in the words of the 4th DCA—would have also excluded the costs to tear out the source of the water damage. Recall that the water exclusion in Glasser excluded damage caused by “water in any form…regardless of the source or the cause of the loss.” (Emphasis added).

Insurance carriers would be wise to specifically narrow in on the particular cause of damage when dealing with water damage claims. If the insureds are only claiming damage caused by water and the carrier has a water damage exclusion endorsement, Glasser suggests that the damage to the insured property caused by water is not covered, regardless of whether the water came from an external or interior source. However, if the insureds are also making a claim for the costs to tear out the plumbing system, Vasquez suggests that a limitation of liability provision for water damage does not apply to the tear out costs.