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February 04, 2019 | Publication| The Challenges of Adjusting Long-Term Water Losses

Timothy R. Engelbrecht

This article is originally a publication of the Southern Loss Association newsletter, January 2019. Legal opinions may vary when based on subtle factual differences. All rights reserved.

Many residential and commercial property insurance policies contain an exclusion that excludes loss caused by constant or repeated leakage or seepage. However, it has become more and more difficult to determine exactly when and under what circumstances that sort of exclusion applies. The purpose of this article is to discuss three case law decisions (Hoey, Price, and Hicks) that address this exclusion with the hope of adding some clarity to the issue.

1. The Hoey case (2008).

In the case of Hoey v. State Farm Fla. Ins. Co., 988 So. 2d 99 (Fla. 4th DCA 2008), a house was vacant between the months of April and November. During that time, over 15,000 gallons of water escaped from a toilet supply line and damaged the house. The insured testified that the damage was caused by "a continuous leakage from that toilet pipe, for a course of three weeks or so" and by a "sudden accidental discharge of water."

The insurance policy contained an exclusion for loss caused by "continuous or repeated seepage or leakage of water or steam from a plumbing system, which occurs over a period of time." An expert testified at trial that the water bills showed water usage had increased gradually from 0 to 26 gallons a day in September, 240 gallons a day in October, and 420 gallons a day in November. The court ruled that the exclusion applied. The court rejected the argument that the exclusion was ambiguous.

2. The Price case (2014).

In the case of Price v. Castle Key Indem. Co., 152 So. 3d 2 (Fla. 2nd DCA 2014), 195,000 gallons of water escaped from an upstairs bathroom while the family was out of town for an extended period causing damage. The insurance policy insured against "sudden and accidental direct physical loss to property." However, the insurance policy contained an exclusion that excluded loss caused by "continuous or repeated seepage or leakage over a period of weeks, months, or years."

The insurer argued the exclusion applied to the water damage. The insured argued that the exclusion did not apply because the start of the water loss was sudden, and that such a large volume of water could not be considered a seepage. The court concluded that the words "sudden" and "seepage" were ambiguous when applied to the facts of the case and ordered that the issues in the case be submitted to a jury for determination (i.e. no summary judgment).

3. The Hicks case (2018).

In the case of Hicks v. Amer. Integrity Ins. Co. of Fla., 241 So.3d 925 (Fla. 5th DCA 2018), the water supply line to the insured's refrigerator began leaking while the insured was out of town. It was a slow leak at first, but over the course of five weeks, the supply line ended up discharging almost 1,000 gallons each day. The insurance policy was an all-risk policy with an exclusion for loss caused by "constant or repeated seepage or leakage of water over a period of 14 or more days."

The insurer argued the exclusion applied to all the water damage. The insured argued that the damage caused by the water during the first 13 days of the water leak should be covered because the exclusion only applies to water losses over a period of 14 or more days. The court ruled the exclusion was ambiguous and that the insured was entitled to coverage for damages he could prove occurred within the first 13 days.

4. Trying to make sense of it all.

Each of these three cases has the long-term leakage exclusion. But the precise language of each exclusion in each case is a little different. In Hoey, the exclusion is "over a period of time." In Price, the exclusion is "over a period of weeks, months, or years." And in Hicks, the exclusion is "over a period of 14 or more days." The court in Hoey found that exclusion unambiguous, while the courts in Price and Hicks found the exclusions there ambiguous.

From a practical standpoint, adjusters should endeavor to learn as much about the facts of any water loss as possible. It is critical to try to learn when the loss started, how the rate of the loss changed over time, and - if possible - when the particular property in question became damaged during the course of the water-loss event. Unfortunately, though, correctly applying the long-term leakage exclusion will continue to be a challenge.

Should you have any questions about this article, would like more information about this topic, or have would like to discuss another coverage matter, please contact Mr. Engelbrecht at e-mail tengelbrecht@butler.legal or telephone (813.594.5805).

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