Ask Mike # Subject: Water Main Break At UCLA Raises Insurance Coverage Questions

Transcription

1 Ask Mike # Subject: Water Main Break At UCLA Raises Insurance Coverage Questions Q. Yesterday over lunch, several of us discussed the monster water damage incident that happened on the UCLA campus last week, when a large water main burst. Naturally, we soon turned to the insurance issues, and whether or not the damage would be covered by a commercial property form. Two in our group suggested that there was no coverage, because property policies exclude damage by surface water. What are your thoughts? A. Since the news first broke on this story last week, I have received several questions like yours, in addition to seeing a lot of discussion on various insurance blogs and other online forums about the coverage issues. While our interest in this particular story is heightened by the dramatic video and the location, water main breaks are not uncommon, given the age of much of our nation s infrastructure. On July 29, on the campus of UCLA, a 30-inch water main had some sort of catastrophic failure, causing a massive geyser of water, estimated to be around 30-feet high, to erupt from under the road. Over 20,000,000 gallons of water gushed into campus buildings and lower levels of parking decks, stranding over 1,000 cars. The newly renovated Pauley Pavilion suffered significant damage, where over an inch of water covered the famous basketball court. After the water was finally shut off, pictures of the damaged pipe showed huge ruptures in two water mains which were connected with a Y -shaped juncture pipe. Reports indicated that the pipes were almost 100 years old, and that the cause of the ruptures was apparently due to the age of the metal pipes. As two of your group recognized, anytime there is a water damage loss, the Water Exclusion should be reviewed. Here is the ISO commercial property exclusion. Proprietary forms may be different. B. Exclusions 1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of 1

2 any other cause or event that contributes concurrently or in any sequence to the loss. g. Water (1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; (2) Mudslide or mudflow; (3) Water that backs up or overflows from a sewer, drain or sump; or (4) Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings. But if Water, as described in g.(1) through g.(4) above, results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage. (1) There are 3 provisions of the water exclusion which bear review for this loss. First, surface water is included in the exclusion [see g.(1)]. Since the water did spread over a sizeable area of the campus, it would certainly seem that it could be classified as surface water. However, this term has been litigated quite a bit, and a majority of the court cases I ve read tend to restrict the definition of surface water to an accumulation of rain (or melted snow) on the ground. At the end of this article, see the link to a discussion of case law on surface water, which is posted on the IIABA Virtual University. (2) The second provision of interest is in g.(3), which includes the overflow of water from a sewer, drain, or sump within the water exclusion. Given that the pipe was a water main, and not a sewer or drain, I do not think this provision applies to the loss. (3) Lastly, g.(4)(a) applies to underground water that flows through a paved surface. This could plausibly be argued as applying to the loss. However, some uncertainty exists about that view, given that the context of g.(4) seems to suggest it only applies to natural subsurface water seepage. 2

3 (4) However, the scope of the water damage exclusion is amended in a separate provision of the Special Form Cause of Loss. See below. Since it seems less than certain that the water damage exclusion applies, the next logical coverage issue to examine is what caused the water main to break. The Special Form Causes of Loss form excludes several events which could have caused the pipe s failure. Excerpts: B. Exclusions 2. We will not pay for loss or damage caused by or resulting from any of the following: d. (1) Wear and tear; (2) Rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself; But if an excluded cause of loss that is listed in 2.d.(1) through (7) results in a "specified cause of loss" or building glass breakage, we will pay for the loss or damage caused by that "specified cause of loss" or building glass breakage. (1) News reports indicate that the water main pipe which broke was laid around 1921, so initial observations by city engineers was that corrosion, or wear and tear, led to the structural failure of the pipe. If further investigation bears this out, then the water damage would seem to be excluded by this provision. (2) Note, however, the last sentence in the excerpt above. If wear and tear, corrosion, or any other cause listed in 2.d.(1)-(7) results in a loss by the specified causes of loss, such damage is covered. See definition [emphasis added]: G. Definitions 2. "Specified causes of loss" means the following: fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire-extinguishing equipment; 3

4 sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage. a. Sinkhole collapse means the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite. This cause of loss does not include: (1) The cost of filling sinkholes; or (2) Sinking or collapse of land into man-made underground cavities. b. Falling objects does not include loss or damage to: (1) Personal property in the open; or (2) The interior of a building or structure, or property inside a building or structure, unless the roof or an outside wall of the building or structure is first damaged by a falling object. c. Water damage means accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of a plumbing, heating, air conditioning or other system or appliance (other than a sump system including its related equipment and parts), that is located on the described premises and contains water or steam. (1) If wear and tear, or corrosion, etc., caused the breaking or cracking of the pipe, the resulting water damage is covered, so long as the pipe was located on the described premises. Unfortunately, this pipe was located under the street (Sunset Blvd.) which runs by the campus, but is not actually on the campus premises. (2) The excerpt above is from the 2007 edition of the CP In the new 2012 edition, this cover for water damage, which is included in the specified causes of loss definition, was broadened. Here is an excerpt from the new provision [emphasis added]: CP G. Definitions c. Water damage means: (1) Accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of a plumbing, heating, air conditioning or other system or appliance (other than a sump system including its related equipment and parts), that is located on the described premises and contains water or steam; and 4

5 (2) Accidental discharge or leakage of water or waterborne material as the direct result of the breaking apart or cracking of a water or sewer pipe that is located off the described premises and is part of a municipal potable water supply system or municipal sanitary sewer system, if the breakage or cracking is caused by wear and tear. To the extent that accidental discharge or leakage of water falls within the criteria set forth in c.(1) or c.(2) of this definition of specified causes of loss, such water is not subject to the provisions of the Water Exclusion which preclude coverage for surface water or water under the surface of the ground. (1) Section c.(2) was newly added in the 2012 edition, and offers a limited broadening of c.(1), which was discussed above. Note that coverage now applies to a water or sewer pipe located off the described premises, if the breakage is caused by wear and tear. For reference. See this informative article on the IIABA s Virtual University: "Surface Water...What Is It?" These materials are intended for educational purposes only and should not be relied upon as legal advice. Please consult a qualified attorney for legal advice. 5