Third DCA Rules Limited Water Damage Endorsement Applies to Appraisal Award, and Insurer Not Liable for Full Amount of Award

By Thomas J. Moody

In People’s Trust Insurance Company v. Sheila Banks, the Third DCA rejected the Insureds’ argument that 1) corrosion is not an act of nature, and 2) a $10,000 coverage limit for damaged plumbing does not apply to costs for tearing out the foundation to access the plumbing system.

In this case, deteriorated cast iron plumbing caused water discharge and resulting damage to the Insureds’ dwelling. The policy included a Water Damage Exclusion endorsement that excluded coverage for discharge or overflow of water from within a plumbing system, whether caused by or resulting from any act of nature. The policy also included a Limited Water Damage endorsement providing $10,000 in coverage for sudden and accidental direct physical loss resulting from discharge of water from within a plumbing system, and included a provision specifically noting that the $10,000 limit “also includes the cost of tearing out” any part of the dwelling necessary to access the plumbing system.

The Insurer accepted coverage for the Insureds’ claim, but sought to limit the amount covered to the $10,000 Limited Water Damage endorsement. Before the trial court, the Insureds successfully argued on summary judgment that 1) because corrosion to the plumbing system is not an act of nature, the Water Damage Exclusion endorsement did not apply; and 2) the Limited Water Damage endorsement only applied to the plumbing system itself, and did not apply to the cost of tearing out the foundation necessary to access the plumbing system. Following summary judgment, the parties agreed to appraisal, which resulted in a $113,318.17 award for the Insureds. The trial court entered final judgment for the Insureds pursuant to the appraisal award, and the Insurer appealed.

On appeal, the Third DCA rejected the Insureds’ arguments and held that the Insurer was only obligated to issue payment pursuant to the $10,000 Limited Water Damage endorsement. Although the policy did not define act of nature, the Court ruled that it “would lead to an absurd result” to hold that deterioration to an old cast iron plumbing system is not an act of nature. The court further found that the $10,000 limitation unambiguously applied to related tear out costs.