Many homeowners’ insurance policies contain an exclusion for “continuous or repeated leakage or seepage of water.” Some policies specify that “continuous or repeated leakage” is excluded where it occurs over a certain period of time (14 or more days, for example). Other policies make no reference to a required timeframe or simply state that the leakage must occur “over a period of time.” The question is, when can this policy exclusion be utilized successfully to defend against a water damage claim?
Unfortunately, there are no cases in New Jersey or Pennsylvania discussing this type of policy exclusion in any detail. A look to other jurisdictions (here, Florida and California) is thus instructive.
In Hoey v. State Farm Fla. Ins. Co., 988 So. 2d 99 (Fla. 4th DCA 2008), the insureds’ home was damaged by water leakage from a toilet supply line. The leak was discovered after the property had been vacant for several months, when a neighbor observed water flowing below a sliding glass door.
The policy at issue excluded losses “caused by or resulting from continuous or repeated seepage or leakage of water or steam which occurs over a period of time and results in deterioration, corrosion, rust, mold, or wet or dry rot.” The policy also provided that it did not insure for loss consisting of or caused by “continuous or repeated seepage or leakage of water from a…plumbing system.”
A review of water bills for the property revealed that in the absence of a leak, the water usage for the unoccupied property was 20 gallons per month. Two months before the loss was discovered, the water usage increased to 760 gallons. One month before the loss was discovered, the water usage increased to 7,280 gallons. Finally, in the 18 days before the loss was discovered, the water usage was 8,600 gallons.
At trial, an expert testified on behalf of the insurer that the leakage resulted from the failure of a nylon fitting in a toilet supply line, and that the water bills demonstrated that water usage had increased gradually over three months from zero to 420 gallons a day. This was an ongoing increase from a drip to a major failure of the fitting. The expert also noted rot in the wood near the fitting and mold in the nearby drywall, which he opined were consistent with leakage over a period longer than a few weeks.
The trial court found that the leak went undiscovered for a period of about three months and thus fell within the policy exclusion for “continuous or repeated seepage or leakage of water…which occurs over a period of time.” The appellate court affirmed, finding that the trial court’s decision was supported by the above-referenced evidence. The appellate court also rejected, without discussion, the insured’s contention that the exclusion at issue was ambiguous.
In Brown v. Mid-Century Ins. Co., 215 Cal. App. 4th 841 (2013), the insureds began observing condensation and mildew on their windows and walls on February 18, 2009. A week later, they noticed mold forming on all of their windows and some of the walls, which they described as “developing everywhere simultaneously.” A month after the condensation was initially noticed, the insureds entered the crawlspace and observed moisture and damp soil. They were unable to observe the source of the water, but shut off the water to the house anyway. A plumber subsequently determined the leak was coming from a hole in a hot water pipe below the insureds’ laundry room.
The policy at issue explicitly stated that it did not cover “any water, or the presence of water, over a period of time from any constant or repeating gradual, intermittent or slow discharge, seepage, leakage, trickle, collecting infiltration, or overflow of water from any source…whether known or unknown to any insured.”
Following the reporting of the loss, the insurer’s claim representative inspected the property and observed (1) pervasive mold and moisture on the interior walls of the home; and (2) heavy corrosion on the leaking pipe. In a recorded statement, the insureds indicated they began noticing evidence of a water leak approximately one month earlier. They indicated the condensation stopped forming on the windows when they turned off the hot water approximately one month later.
The insurer retained a plumbing expert who inspected the relevant section of pipe and reviewed photographs previously taken by the insurer. The plumbing expert opined that corrosive elements caused a “slow, gradual and incremental deterioration of the pipe’s outer wall,” resulting in a pinhole-sized opening through which hot water slowly leaked out. Thereafter, the deterioration process accelerated, resulting in a larger opening and more significant leak. The expert opined the leak lasted at least 5 months before it was discovered and the water shut off. The expert also reviewed water bills for the home, which revealed increased water consumption during the period water was escaping from the pipe, which then decreased to normal levels after the repair. The insureds’ retained their own expert, who opined that the pipe “failed suddenly.”
On appeal from the trial court’s grant of summary judgment in favor of the insurer, the insureds did not dispute the existence of the effects of the water for at least a month or two. They argued, however, that their expert’s opinion that the breaching of the pipe occurred “suddenly” created a triable issue of fact. The appellate court rejected this argument, noting that even if the breaching of the pipe occurred suddenly, the subsequent leakage of water continued for a month or two (according to the insureds) or 5 months (according to the insurer). This water discharge over a period of months, which was the cause of the damage to the insureds’ home, did not qualify as “sudden” under the plain terms of the policy.
The appellate court also rejected the insured’s argument that the policy’s reference to leakage which occurs “over a period of time” was ambiguous. “The fact that the policy does not define ‘a period of time’ does not necessarily create ambiguity…[A]lthough there may be, at the quantum level, some ambiguity in the concept of ‘a period of time,’ an average layperson understands generally what ‘a period of time’ is, and understands that for water escaping from a pipe, ‘one to two months’ qualifies.” The appellate court thus affirmed the grant of summary judgment in favor of the insurer.
The above-referenced cases demonstrate that “continuous or repeated leakage” exclusions can be utilized successfully where properly supported by competent evidence establishing the duration of the leak. This may include evidence of rot, mold, increased water usage and admissions or expert testimony regarding the duration of the leak. An insurer seeking to rely on this type of exclusion should thus be on the lookout for, and otherwise develop, as many of these types of evidence as possible.