Melania and Charlie Cheetham held an all-risk homeowners policy with Southern Oak Insurance Company. An underground pipe which was located on the premises broke due to age and deterioration. When debris entered the pipe a blockage was formed which caused waste water and material to recede into the residence premises through its drains.

The HO3 policy did not insure for any loss caused, among other things, by deterioration. However, the policy contained an exception which read that “unless otherwise excluded, we cover loss to property…resulting from an accidental discharge or overflow of water…from within a plumbing system on the residence premises”…(exception to the Water Damage exclusion c.(6)).

The Cheetham's filed a claim with Southern Oak for the water damage, which was denied. The Cheetham's filed suit and Southern Oak entered a motion for a directed verdict. Finding the claim to be specifically excluded by the terms of the policy, the court ruled in favor of the insurer. This appeal followed.

Two issues were raised before The Court of Appeals: whether the policy is ambiguous where it excludes water damage caused by water backup through sewers or drains but provides coverage for the accidental discharge of water within a plumbing system on the residence premises due to deterioration; and, if not, whether exclusion c.(6) is applicable when a pipe within the plumbing system of the residence premises breaks from deterioration causing waste backup to enter the home through its drains.

The court found that the policy's exclusions contemplated damage caused by water originating from some place other than within the plumbing system on the residence premises. Though the terms sewer and drain are not defined in the policy, that alone does not render those terms ambiguous, said the court. The general operable understanding of the terms sewer and drain denote a device which carries waste away from property. Moreover, a majority of case law holds that a sewer or drain begins at the property line.

Because the damage here was caused by the deterioration of a pipe within the plumbing system, which caused waste originating from the residence premises plumbing system to regress back into the home, the court reasoned that the Cheetham's loss was covered under the policy.

The ruling of the Circuit Court was therefore reversed and remanded.

Editor's Note: The court examined the policy in whole to determine that it excluded damage caused from “outside forces unrelated to the residence premises' plumbing system” only. For example, clearly excluded under the policy is damage from flood, surface water, waves, tidal water, the overflow of a body of water, and water material below the surface of the ground. It stated that an insurance policy is not made ambiguous simply for the reason that its application requires complex analysis or because pertinent terms are not defined therein. There was an accidental discharge of water from within the plumbing system caused by deterioration, and by its own terms, that is what the policy intended to cover.