Viewpoint: Ruling Allows Insurers to Enforce Water Damage Coverage Limitations

Chances are, if you live in Florida, you have seen a billboard or heard an advertisement about water damage or pipe lawsuits. For some time, insureds have filed claims and lawsuits alleging repair costs that frequently exceed $100,000. However, Rumberger Kirk’s recent success in obtaining final summary judgment for a carrier could provide a path to success for carriers seeking to enforce water damage coverage limitation endorsements in the future.

In an effort to limit exposure in water damage claims, insurance carriers have (in exchange for a premium credit) been introducing various limited water damage endorsements into their policies. Most of the endorsements limit coverage to $10,000 for damage caused by water from a plumbing system, including the cost of tear out. Historically, insurance companies have had mixed results in the enforcement of these endorsements. Many trial courts have invalidated the endorsements relying upon arguments fashioned by the plaintiff’s bar that the endorsements are either vague, ambiguous, or expressly do not include the cost of tear out and/or other fringe policy benefits.

However, there may finally be light at the end of the tunnel.

In more recent policies, carriers have begun including two water damage endorsements—one that excludes all water damage in the policy resulting from a plumbing system (“Exclusion Endorsement”), and another that rolls coverage back on, but limits liability to $10,000 (“Coverage Endorsement”). Importantly, the Fourth District Court of Appeal determined in March the validity of a typical Exclusion Endorsement in Dorothy Archer v. Tower Hill Signature Insurance Co. In doing so, the court in Archer found the Exclusion Endorsement to be clear and unambiguous!

As a result, the court applied the exclusion against the insureds and affirmed the lower court’s grant of final summary judgment in favor of Tower Hill. This case is significant because, presumably, carriers can now incorporate this Exclusion Endorsement into their policies (if not already present) to exclude all water damages resulting from, among other things, “accidental or intentional discharge or overflow of water or steam from within a plumbing … system.” Additionally, this endorsement completely rids the policy of any coverage for water damage, meaning the only way an insured can recover for water damage would be if another endorsement rolls coverage back on. This is where Coverage Endorsements come into play.

As mentioned above, Florida courts have repeatedly invalidated Coverage Endorsements. However, in Lightfoot v. Security First Insurance Co., the carrier had both an Exclusion Endorsement and Coverage Endorsement in its policy. The loss was indisputably caused by water damage from within a plumbing system, and the carrier promptly tendered the full $10,000 Coverage Endorsement limit pre-suit.

The insureds then sought payment for property damages in excess of $10,000, plus tear out and various other benefits such as debris removal. Having already met its limit of liability, the carrier refused and suit was filed. In response to suit, the carrier filed a motion for final summary judgment. At the hearing, the insureds argued the Coverage Endorsement was unclear as to whether debris removal, build back, or tear out coverages were included. The carrier, on the other hand, relied on the recent Archer case as a building block to support its argument that if the Exclusion Endorsement was clear and unambiguous, so too was the Coverage Endorsement. The court agreed with the carrier, relying in part on Archer, finding:

[T]he Court finds the Exclusion Endorsement is clear and unambiguous and applies to exclude Plaintiffs’ plumbing leak claim. However, the Policy’s Coverage Endorsement rolls coverage back on for sudden and accidental damage caused by discharge or overflow of water from a plumbing system. The Coverage Endorsement also provides a limit of liability, totaling $10,000, for all covered water losses. The loss in this case was caused by the sudden and accidental discharge or overflow of water from a plumbing system. Defendant accepted coverage and issued payment totaling $10,000, pursuant to the Policy’s Coverage Endorsement. The Court finds that the Coverage Endorsement is clear and unambiguous, and must be applied according to its plain meaning. The only coverage afforded for damage caused by water in this case is that which is expressly stated within the Coverage Endorsement. Because Defendant has met its limit of liability under the Coverage Endorsement in this case, no additional payments are due under the Policy.

Notably, the court found the “only coverage afforded for damage caused by water . . . is that which is expressly stated within the Coverage Endorsement.” That is because the Exclusion Endorsement completely rid the policy of all coverage for water damage. Thus, any coverage for the loss must be limited to the express terms of the Coverage Endorsement.

The Coverage Endorsement in Lightfoot made no mention of tear out, debris removal, or the like. Therefore, the court was correct in granting final summary judgment for Security First. The court’s ruling provides a welcomed break from previous trial court rulings that have invalidated water damage endorsements. Moving forward, where appropriate, carriers could use the steps outlined above when seeking summary judgment in similar cases.