The article of the month discusses the general features of the named nonowner coverage endorsement, the liability coverage, the medical payments coverage, and uninsured and underinsured motorists coverage. A brief description of the rating procedure is also noted here. See Named Nonowner Coverage.

Water Damage Exclusion and Ensuing Loss Claim

The insurer appealed a summary judgment in favor of the insured. The claim pertained to a pool that lifted out of the ground, damaging the pool shell, the pool deck, the rock garden, and the waterfall. This case is Liberty Mut. Fire Ins. Co. v. Martinez, No. 5D13-2683, 2015 WL 585550 (Fla. App. Feb. 13, 2015).

The Martinezes insured their home with Liberty Mutual Fire Insurance Company. The policy was an all-risk insurance policy. The area in which the Martinezes lived had a severe tropical storm one day and the following day, Martinez discovered that the in-ground swimming pool had lifted out of the ground, causing extensive damage. The insured filed a claim with Liberty Mutual, but the claim was denied. The insurer said the damage was caused by water below the surface of the ground that exerts pressure on or seeps or leaks through a building, foundation, swimming pool, or other structures. The insured countered that the claim was covered due to the ensuing-loss provision that provided coverage for ensuing loss to property described in the coverages not excluded or excepted in the policy.

The insured sued and the trial court found that the direct cause of the damage was the pool shell coming out of the ground, rather than the hydrostatic pressure. Liberty Mutual appealed.

The District Court of Appeal of Florida, Fifth District, noted that the issue on appeal was whether the water exclusion excludes the losses from coverage or whether the damage was covered as an ensuing loss. The court said that an ensuing loss is a loss that occurs separate from but as a result of an excluded loss. However, ensuing-loss exceptions are not applicable, the court said, if the ensuing loss was directly related to the original excluded risk. In this instance, the court found that the damage to the pool deck, rock garden, and waterfall was not an ensuing loss. Rather, the policy expressly excluded losses that occurred directly or indirectly from subsurface water pressure. In the court's view, the damage resulted from subsurface water pressure and so, the water damage exclusion unambiguously applied. Thus, the court said, the ensuing-loss provision need not be further examined.

The ruling of the trial court was reversed and remanded.

Editor's Note: The Court of Appeal of Florida took its lead in this case from decisions made by courts in New York and South Carolina since there were no Florida cases on point. The courts in those states ruled on coverage disputes in which the facts were similar to this one and both state courts ruled that the water damage exclusion clearly applied to damage claims such as the one made by the Martinezes.

Another Water Damage Claim and Ensuing Loss Counterclaim

The insureds brought a breach of contract action against the insurer for failure to provide coverage for water damage to the basement after an abutting water main ruptured and water flooded their property. This case is Platek v. Town of Hamburg, 2015 WL 685726 (N.Y. App. Feb. 19, 2015).

A subsurface water main abutting the property of the Plateks ruptured, causing water to flood into and severely damage the finished basement. The insureds filed a claim with their insurer, Allstate Indemnity Company. The insurer denied coverage based on the water damage exclusion that excluded coverage for loss to property caused by water on or below the surface of the ground, regardless of its source, including water that exerts pressure on or flows, seeps, or leaks through any part of the residence premises; the policy also noted that the insurer would cover sudden and accidental direct physical loss caused by fire, explosion, or theft resulting from water damage. The insured filed a lawsuit.

The Supreme Court, Erie County, granted the insureds' motion for summary judgment and this appeal followed.

The insureds claimed that the water intrusion loss was caused by an explosion of the water main and so, the exception to the water damage exclusion applied. Allstate countered that the exception did not apply because, under that provision's wording, any loss caused by an explosion must result from the explosion, and in this instance, any explosion occurred earlier and outside the residence premises when the water main broke.

The Court of Appeals of New York said that three basic principles would guide its analysis of this dispute. First, the court must look to the language of the policy. Second, although the insurer has the burden of proving the applicability of an exclusion, it is the insured's burden to establish the existence of coverage. Finally, where a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk.

In this case, the court said, the insureds' loss occurred when water from a burst water main flowed onto their property, flooding the basement of their home. Accordingly, their loss clearly falls with the water damage exclusion cited by Allstate. Turning to the sudden and accidental exception in the water damage exclusion, the court said the clause was basically an ensuing loss provision. The court briefly described the origin of the ensuing loss provisions in insurance policies and held that an ensuing loss at least requires a new loss to property that is of a kind not excluded by the policy.

The Plateks claimed that the water damage was covered because it was caused by an explosion of the water main. However, the court said that the insureds have ignored the water loss exclusion's prefatory language that specifies that the insurer does not cover loss to property consisting of or caused by definitive water causes. Reading the policy as a whole, the court said that the exception would trigger coverage for any sudden and accidental direct physical loss caused by an explosion resulting from a loss to the property consisting of or caused by water on or below the surface of the ground of the residence premises, regardless of the source. And, this does not describe what happened in this instance.

In sum, the court ruled that interpreting the insurance policy as the insureds propose would contravene the water loss exclusion's purpose as expressed in unambiguous language which is to preclude coverage for damages caused by the entry of water onto the insureds' property. Permitting coverage under the facts of this loss would force Allstate to insure a loss it did not contemplate and, indeed, affirmatively excluded. The ruling of the trial court was reversed.

Editor's Note: The decision of the Court of Appeals of New York noted that a majority of jurisdictions refuse to interpret an ensuing loss provision to make an excluded loss reappear as a covered loss. In this instance, the court held that the loss was directly caused by water flowing into the basement and not caused by the explosion of an off-premises water main; therefore, the ensuing loss provision was not going to override the water damage exclusion.

Attorney Fees as Court Costs

Following an attorney's fee judgment awarded against the insured under an auto policy, the injured motorists added the insurer as a third-party defendant and alleged it was liable for the judgment. This case is GEICO General Ins. Co. v. Hollingsworth, No. 5D14-1437, 2015 WL 376406 (Fla. App. Jan. 30, 2015).

An automobile accident occurred in which the insured (Kassam) caused injury to Hollingsworth. The claim against Kassam went to trial and the court entered judgment for Hollingsworth in the amount of $16,603.24. Because this judgment exceeded the amount of the proposed settlement originally suggested by Hollingsworth (and rejected by Kassam) by more than twenty-five percent, Hollingsworth moved for attorney fees under the Florida Rule of Civil Procedure and Florida statutes. The court granted Hollingsworth's request and entered an attorney fee judgment against Kassam in the amount of $113,175.

Hollingsworth then moved to add Geico as a party defendant to the attorney fee judgment and the trial court ruled in favor of Hollingsworth. The insurer appealed.

The District Court of Appeal of Florida, Fifth District, noted that Geico claimed there was a bright-line rule that prohibits a plaintiff from ever recovering attorney fees assessed against a defendant from the defendant's insurer if the fees were awarded based on a proposal for settlement. Hollingsworth, on the other hand, said that the issue is one of contractual interpretation in that the attorney fees were covered as additional payments under the terms of the insurance policy. The court agreed with Hollingsworth.

The court focused on the policy language wherein the insurer agreed to pay “all court costs charged to an insured in a covered lawsuit”. The court found that this language emphasized that the insurer was required to pay all court costs. The insurer could have clarified its intentions that court costs did not include attorney fees but it did not. The ruling of the trial court was affirmed.

Editor's Note: In this case, the Court of Appeal of Florida held that a judgment constituted a court cost within the meaning of the auto policy's additional payments section stating that the insurer will pay all court costs charged to an insured in a covered lawsuit. It is interesting to note that the court said the insurer could have clarified its intentions in this area but did not. This is interesting because certain ISO forms (the CGL form and the BAP, for example) now state that the insurer will pay “all court costs taxed against the insured in the lawsuit. However, these payments do not include attorneys' fees or attorneys' expenses taxed against the insured.”

Estoppel and Policy Exclusions

The insured brought an action against the insurer to recover costs incurred in successfully defending a negligence action brought against the insured. This case is Deardorff v. Farnsworth, CV10040782; A152357, 2015 WL 465329 (Ore. Ct. App. Feb. 4, 2015).

The plaintiffs were transporting horses in California that were owned by others when the horse trailer caught fire, killing the horses. The insurers for the horse owners compensated the horse owners for their losses and then filed an action against the plaintiffs, alleging that the plaintiffs had negligently caused the death of the horses. The plaintiffs tendered the defense of the case to the insurer, Oregon Mutual Insurance Company (OMI). OMI refused to provide a defense, contending that its policy did not cover the cost of defending plaintiffs. The plaintiffs successfully defended the action, incurring costs in doing so. This case was brought against OMI to recover defense costs.

The trial court ruled in favor of the plaintiffs and OMI appealed.

The Court of Appeals of Oregon noted that the facts are not in dispute. The policy prepared by OMI was for business and commercial insurance. However, the policy did not include care, custody, or control liability insurance; the policy specifically excluded coverage for property damage to personal property in the care, custody, or control of the insured. The policy did include care, custody, or control property insurance, but it conditioned OMI's coverage obligations on whether there were additional insurance policies covering the same loss, in other words, excess coverage.

The court found that the trial court relied on the theory of estoppel in its ruling favoring the plaintiffs. The trial court said OMI's communication to its agent that care, custody, or control liability was covered under the liability form led the agency to tell the plaintiffs that they had care, custody, or control liability insurance.

Estoppel precludes a person, based on the person's acts, conduct, or silence where there is a duty to speak, from asserting a right that otherwise would have been available. However, there are limitations to the application of estoppel in the insurance context. OMI argues that estoppel cannot create coverage or negate an express exclusion in an insurance policy. The Court of Appeals said that an express exclusion does operate to remove certain circumstances from coverage that would be covered but for the exclusion, and in this instance, the policy clearly excluded care, custody, or control liability coverage.

The court decided that pertinent case law establishes that estoppel cannot be used to negate an express exclusion in an insurance policy. In this case, the plaintiffs sought to expand the scope of an unambiguous insurance policy through the doctrine of estoppel and the court would not allow this. The ruling of the trial court was reversed and remanded.

Editor's Note: The Court of Appeals basically found that there was a miscommunication problem here. The agent asked the insurer about care, custody, or control liability insurance and the insurer responded that such coverage is available in a liability form. However, the insured received a property form wherein care, custody, or control property coverage was available on an excess basis. The trial court used the words of the insurer to estop the insurer from denying coverage, but the appeals court said there was an express care, custody, or control exclusion in the liability policy and that unambiguous exclusion could not be overruled by the doctrine of estoppel.