Insurance Law – Property Damage

A homeowner sustained significant water damage to his home in Ann Arbor while he was living in Ohio. A water line separated from the wall in an upstairs bathroom causing significant water flow into the house for 27 days. Cincinnati Insurance Company denied the claim and moved for summary disposition, arguing there was no coverage for the water loss based on an exclusion in the insurance policy applying to physical loss caused by “constant or repeated seepage or leakage of water… over a period of weeks, months or years.” The trial court ruled in the homeowner’s favor, reasoning that the terms “seepage” and “leakage” were more akin to a slow release of a small amount of water consistent with the insurance policy’s language about “weeks, months or years” as periods of time it would take for a small discharge of water to cause damage. The court of appeals agreed with the trial court, and rejected the insurer’s claim that the exclusion applied to bar coverage in this case.

The court of appeals noted that exclusionary clauses are strictly construed in favor of the insured. While the policy does not define the term “leakage,” it must be read in accordance with its commonly used meaning. “We conclude that the commonly used meaning of ‘leak’ refers to a gradual or low-volume water event. In addition, looking at the exclusion as a whole supports this conclusion. For the exclusion to apply, the leakage or seepage is required to be constant or repeated over a period of weeks, months or years.” This time requirement of weeks, months, or years is necessary for a low-volume, gradual water leakage or seepage to cause significant damage to a home. As the trial court found, the terms of the exclusion demonstrate plaintiff’s attempt to avoid coverage for losses that are caused by a homeowner’s neglect, failure to maintain, and failure to occupy home. This does not describe what occurred in defendant’s home. The amount of water that was released in the defendant’s home would have caused significant damage within hours or days because of the separated pipe essentially caused flooding. The court of appeals agreed with the trial court that the exclusion applied to low-volume, slow leaks or seepage and not to the flooding type of event that resulted from the separated pipe in the homeowner’s Ann Arbor house. Therefore, the homeowner had a valid claim under the insurance policy.

The case is Cincinnati Insurance Company v Kaeding, unpublished Court of Appeals case 332559 decided July 20, 2017.

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About the Author

Mr. Zelenock grew up in Ann Arbor, Michigan, and earned a B.A. in history from the University of Michigan. He graduated from the Indiana University Maurer School of Law in 1998, and has practiced law in Traverse City since 1998.
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