Settling Due to Leaking vs. Natural Causes

May 5, 2010

The policyholder submitted a claim for a broken water pipe hidden behind the walls of his home. The carrier has agreed to pay to access the pipe and restore the walls. During the repair process, the contractor noticed significant settling of the slab which the contractor attributes to escaped water from the broken pipe. The contractor drilled sample holes in the garage contiguous to the slab in the area of the water damage and found settlement due to the water damage along the footers closest to the water leak and as he moved 5 feet away he found very little or no settlement. He also noted the drain pipe ran in the direction of the garage and stated that it was natural for water to follow the slope of the pipe and impacted the space under the slab along one side of the garage.

 

Travelers is declining costs to properly secure the slab. Also, Travelers notes land is not covered property.

Pennsylvania Subscriber

The settling exclusion is intended for natural settlement that occurs over time, not settlement as a result of a leak. However in Sharp v. State Farm Fire & Cas. Ins. Co. 938 F. Supp. 395 (W. D. Tex., 1996) the court held that the carrier was correct in denying coverage for loss from foundation movement caused by a plumbing leak. They felt this was within the settling, cracking, bulging exclusion. Likewise, in Montee v. State Farm Fire and Cas. Co., 782 P.2d 435 (Or. App. 1989) the court ruled that even though the water that caused damage to the house was from an empty house uphill from the insured, the settling, cracking, bulging exclusion applied. Conversely, in Novell v. American Guar. And Liability Ins. Co., 15 P.3d 775 (Colo. App. 1999) the court ruled that the settling exclusion was ambiguous and that there was coverage for settlement caused by an underground water leak. Likewise Hartford Acc. & Indem. Co. v. Phelps 294 So. 2d 362 (Fla. App. 1974) agrees and entered judgment in favor of the insureds for coverage for settlement of the house when a broken pipe which was part of the house leaked and caused settlement.

 

We agree with the later courts, that the settlement exclusion is intended for natural events over time, not sudden events. However as you can see courts are divided, and you might want to check in your area to see how courts feel about this issue.

 

The loss is to the foundation, not the dirt, so the land exclusion doesn't apply either.

 

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