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Published: 2008-03-26

Trends in Plumbing Leak and Foundation Damage Claims Under Commercial Property Policies



The past few years have seen an increase in property insurance claims involving cosmetic and foundation damage caused by plumbing leaks under commercial property policies. The vast majority of published opinions in Texas on the issue involve interpretation of the homeowners' policy. The language of the standard homeowners' policy is substantially different from many commercial policies, and there are significant differences from one commercial policy form to another.

The most common policy form at issue in the foundation damage claims due to plumbing leaks is the Causes of Loss -- Special Form, also commonly referred to as the "CP 10 30." Some of the most commonly encountered issues are the exclusions for continuous leakage of water, access costs, commencement of the loss, and allocation. While there is no published case law discussing any of these issues, the Texas federal district courts and state courts recently have issued unpublished opinions discussing each of these issues.

Continuous Leakage Exclusion

The majority of Texas courts interpreting and applying the 14-day continuous leakage exclusion to foundation damage claims allegedly caused by the accidental discharge of water have found the exclusion applicable where the insured's own expert determines the leaks occurred over a period of time longer than 14 days. Out-of-state courts have universally applied the continuous leakage or similar exclusion to claims from long term leaks.

To combat the application of the continuous leakage exclusion, insureds have argued the exception to the settling exclusion is applicable to all water damage claims and thereby trumps the continuous leakage exclusion. Texas courts have found this to be an unreasonable interpretation.

Access Costs

Even if there is no coverage for plumbing leaks, insureds frequently argue there is still coverage for access costs pursuant to an additional coverage extension for water damage contained in the CP 10 30. To date, Texas courts have rejected this argument and have held there must be a covered water damage loss before there is coverage for costs to access the plumbing system.

At least one court has found the exclusion for costs of excavation, backfilling and filling found in the Building and Personal Property Coverage Form, CP 00 10, applicable to preclude coverage for costs to access the plumbing system for repairs.

Commencement of the Loss

The standard policy conditions form attached to commercial property policies issued in Texas states that the loss must "commence" during the policy period. Although there are no published cases on the issue, one Texas Court of Appeals has interpreted "commences" to mean the damage must manifest itself during the policy period. See Vanguard Underwriters Ins. Co. v. Forist, 1999 WL 498200 (Tex. App. - San Antonio 1999, pet. denied). The court in Vanguard also held it is the insured's burden to establish the loss occurred in the policy period.

Allocation

The insured has the burden to prove the damages allocable to plumbing leaks versus normal wear and tear, settling and other non-covered perils. Wallis v. United Service Auto. Assoc., 2 S.W.3d 300, 303 (Tex. App. -- San Antonio 1999, pet. denied).