Insurance Coverage and Bad Faith

Fifth DCA Strikes Blow to Popular Policy Exclusion

Fifth DCA Strikes Blow to Popular Policy Exclusion

The Fifth District Court of Appeal recently issued a decision that will likely force homeowners insurance carriers to rewrite one of their stalwart policy exclusions that pertains to “constant or repeated seepage or leakage” within the insured’s residence. While there are multiple variations of this exclusion depending on the carrier or the policy, one version in particular was called into question when the Fifth District determined that the language was found to have ambiguous elements.

Any attorney who has handled first party property damage cases involving water leaks has undoubtedly come across a case where an insurance claim was denied pursuant to an exclusion in the homeowner’s insurance policy for “constant or repeated seepage or leakage.” One common variation of this exclusion provides: “We do not insure for losses caused by constant or repeated seepage or leakage of water over a period of 14 or more days.” A typical example of this would be if a homeowner discovers a leak beneath the kitchen sink and it is determined that the leak had been ongoing for several months. The carrier would generally deny coverage for this claimed loss under the seepage or leakage exclusion.

A similar scenario occurred in Hicks v. American Integrity Insurance Company of Florida. The carrier filed a motion for summary judgment based on the seepage or leakage exclusion, and the insured filed a cross-motion for summary judgment arguing that a loss occurred, that any loss occurring within the first 13 days is covered, and that he was entitled to damages for the covered loss. The trial court granted the carrier’s motion for summary judgment, and the insured appealed arguing that the exclusion only applies to losses caused by water on day 14 and onward. 

The Fifth District determined that the “over a period of 14 days or more” language of the exclusion does not unambiguously exclude losses caused by seepage or leakage that occurs within the first 13 days. Therefore, the court construed these terms against the carrier and in favor of coverage. Further, the court found that the burden is on the carrier to prove that a particular loss was sustained after the thirteenth day and is therefore not covered under the policy.

In the wake of this decision, and until carriers rewrite the seepage or leakage exclusion, carriers will have to adjust long term damage claims differently. The added burden of having to distinguish between water damage that was sustained on day 13 versus day 14 will play a major role in their decision on how to proceed in each claim. In certain cases, more emphasis may be placed on the negligence and maintenance exclusions of the policy.   

If there is a silver lining for carriers, it is that courts should place greater emphasis on the prejudicial impact of any action taken by an insured that hinders or obstructs the carrier’s investigation while adjusting the claim. Carriers cannot be expected to accurately parse out every detail of what happened, down to the exact day, when the insureds fail to satisfy their obligations under the policy.