Water Loss Exclusions Do Not Conflict per Washington Court

Earlier this year, the U.S. District Court for the Western District of Washington addressed the interaction between two exclusions that apply to water damage claims.  In Bunch v Nationwide Mut Ins Co., 2014 WL 172261 (W.D. Wash. Jan. 15, 2014) the court considered an insured’s argument that the exclusions conflicted with one another, rendering them ambiguous and providing coverage for the loss.  The case concerned an insured that had an “all risk” homeowners insurance policy that covered any physical loss to her residence that was not specifically excluded in the policy.  The residence sustained water damage.  It was eventually determined that the water damage was caused by a leaky kitchen faucet and an air conditioning unit.  The insurance company denied the claim based on the “water seepage exclusion,” which excludes from coverage:

[C]ontinuous or repeated seepage or leakage of water or steam over a period of time from within a plumbing, heating or air conditioning system or from within a household appliance.

The insured, on the other hand, contended that the “wear and tear exclusion” applied to the loss, and that the loss was covered under that provision.  The “wear and tear exclusion” precludes coverage for physical damage resulting from wear and tear (among other things), unless the wear and tear causes water to escape from household appliances:

[W]ear and tear …. If any of these cause water to escape from a plumbing, heating or air conditioning system or household appliance, we cover loss caused by the water.  We also cover the cost of tearing out and replacing any part of a building necessary to repair the system or appliance.

The insured argued that the “water seepage exclusion” relied upon the insurance company conflicted with the “wear and tear exclusion,” and that they were ambiguous when read together.  For example, if water damage was caused both by seepage over a period of time and wear and tear, the policy is ambiguous with respect to whether the loss is covered.  Under Washington law, ambiguities are resolved in favor of the insured; thus, according to the insured, her water loss should be covered.  The insured moved for summary judgment based on this theory.

The court rejected the insured’s argument based on three grounds.  First, the court determined that the insured’s argument was based on a false premise that the “wear and tear exclusion” grants coverage for her loss.  Under Washington law, an exclusion cannot expand the coverage granted by the policy.  According to the court, the insured’s argument would be contrary to this principle of Washington insurance law.  Second, the insured’s argument was rejected because it “does not make logical sense.”  The court determined that, in effect, the insured’s argument “amounts to an assertion that because one exclusion does not deny coverage, coverage must exist because the other exclusion does not apply.”  Despite the insured’s arguments otherwise, the court held that exclusions do not need to be harmonized with one another—if a single exclusion applies, the loss is excluded.  Third, other jurisdictions addressing the issue have largely rejected the theory advanced by the insured.  The court found no reason to deviate from the weight of authority from other forums.  Based on these reasons, the court denied the insured’s motion.

Notably, the insured claimed there were a number of similarly situated insureds whose claims were improperly denied by the insurance company.  The insured purported to act on behalf of a putative class of Washington policyholders who submitted claims for water damage and were denied coverage based on the alleged ambiguity.  Prior to addressing the case on summary judgment, the court denied the insured’s motion for class certification.

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