In Brown v. Mid-Century Insurance Company (No. B238357, filed 4/2/13, ord. pub. 4/25/13), a California appeals court ruled that the length of time a pipe leaks determines coverage, rather than the circumstances of the pipe failure itself.
In Brown, Mid-Century insured a split-level home on a concrete slab. The insureds first noticed condensation on the inside of windows and surrounding drywall. They cleaned, but it returned within a day. In a week, they noticed mold forming around the windows. A few weeks later, a family member went in the crawlspace and observed damp soil. They hired a plumber, who diagnosed a leak in a hot water line under the slab. The plumber opened the slab, found the leak and made the repair.
The Mid-Century policy listed certain types of loss or damage that were not covered, “however caused,” including “loss or damage consisting of, composed of or which is water damage.” The policy included an “extension of coverage” that provided “limited” water damage coverage “for direct physical loss or damage to covered property from direct contact with water, but only if the water results from …(4) a sudden and accidental discharge, eruption, overflow or release of water … (i) from within any portion of: (a) a plumbing system.” The policy described what was not included in the limited water damage coverage: “A sudden and accidental discharge, eruption, overflow or release of water does not include a constant or repeating gradual, intermittent or slow release of water, or the infiltration or presence of water over a period of time. We do 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.”
Beside limiting coverage for water damage, the policy stated: “We do not insure loss or damage consisting of, composed of, or which is fungi. Further, we do not insure any remediation.” The policy also contained the following exclusion: “‘We do not insure loss or damage directly or indirectly caused by, arising out of or resulting from fungi or the discharge, dispersal, migration, release or escape of any fungi. Further, we do not insure any remediation….” The policy defined fungi as “any part or form of fungus, fungi [or] mold….”
Mid-Century’s adjuster took recorded statements in which the insureds admitted noticing the leak approximately one month before it was repaired and reported. The adjuster inspected the premises and the damaged pipe that had been removed by the plumber. Mid-Century also hired a leak detection company, which confirmed that there were no other leaks. Mid-Century then denied the claim on the basis of wear and tear, that led to a hole in the pipe through which water leaked for a period of time.
In the subsequent bad faith lawsuit, Mid-Century moved for summary judgment based on an expert’s declaration of an opinion that gradual corrosion had damaged the pipe, which had been defectively embedded in the concrete slab without a plastic sleeve. The expert opined that the hole was the result of ordinary wear and tear, and would have developed as a dripping pinhole that gradually accelerated to a steady leak, with the water migrating to and pooling in the adjacent dirt floor of the crawlspace. Based on his examination of the pipe, photographs and water bills, the insurer’s expert concluded that the pipe had been leaking for at least five months before it was repaired.
The insureds countered with their own expert, who gave his opinion that even if the corrosion to the pipe had been gradual wear and tear, there was a precise instant — a nanosecond — when it suffered a sudden breach, going from watertight to leaking in an instant. They argued that, at a minimum, this posed a triable issue of fact precluding summary judgment.
The Brown court disagreed, finding that there was no “sudden and accidental discharge, eruption, overflow or release of water.” According to the court, even if the pipe transitioned from sound to unsound in an instant, that did “not change the fact that the release of water, even if it commenced with a nanosecond ‘breach in the wall of the pipe’ and resulted in a ‘mist, stream and spray,’ was constant or intermittent, and occurred over a period of ‘a month or two’ (according to the [insureds]) or five months (according to Mid-Century). Even if…the pipe ‘failed suddenly,’ the water damage…resulted from hot water ‘continu[ing] to spray and stream (not drip) out the holes until the water line was shut off.'” Thus, “whether the water leaked or sprayed or streamed out of the hole(s) in the pipe, the water leaked, sprayed, or streamed out constantly and gradually over time. Such a water discharge does not qualify as ‘sudden’ under the plain meaning of the terms of the  policy.”
The Brown court also rejected an argument that the mold and fungi exclusion did not apply, on a claim that the efficient proximate cause of the damage was a covered risk. The court disagreed, saying that, even if the damage had been due to a sudden discharge of water, the mold was not a conceptually distinct risk or event. (Citing Finn v. Continental Ins. Co. (1990) 218 Cal.App.3d 69, 70-72.)
Finally, the Brown court rejected a claim that the limitation on water losses was not sufficiently conspicuous, plain or clear, merely because it was contained in an “extension of coverage” provision rather than the policy’s exclusions. The court noted that the limitation was stated in understandable terms, in the vocabulary of the average layperson, and was not hidden in fine print.
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