Constant or Repeated Seepage Over a Period of 14 Days or More

Some variation of the exclusionary clause, “constant or repeated seepage over a period of 14 days or more,” appears in almost every homeowners policy issued in Florida. Its purpose is clear—to control and limit liability for a continuous leak and to encourage the insured to timely report and mitigate water damage. However, in what appears to be an issue of first impression in Florida, at least according to a recent decision out of Florida’s 5^th District Court of Appeal, the exclusion itself may need some clarification.

In Hicks v. American Integrity Insurance Company of Florida, Hicks was insured by American Integrity Insurance under an “all risks” policy. Between September and October of 2012, while he was out of town for an extended period of time, the water supply line to his refrigerator began to leak. The leak was apparently slow at first, but it increased over time to the point that it was leaking approximately 1,000 gallons per day. Hicks filed a claim with American Integrity. Following its investigation, American Integrity denied the claim on the basis of its policy exclusion for constant or repeated seepage. The exclusion reads: “We do not insure…for loss…[c]aused by…[c]onstant or repeated seepage or leakage of water…over a period of 14 or more days.”

Hicks filed suit against American Integrity, alleging breach of contract. Subsequently, American Integrity filed a motion for summary judgment on the basis of its policy exclusion of leaks occurring over a period of more than 14 days. Hicks filed a counter motion for summary judgment, arguing he was entitled to coverage for all losses occurring within the first 13 days following the start of the leak. In support of his motion, Hicks submitted a report from a forensic general contractor, which attempted to determine the portion of the loss resulting from the first 13 days of the leak. Following a hearing on the competing motions, the trial court sided with American Integrity and granted it summary judgment. The court reasoned that while the policy might provide coverage for the first 13 days of the loss, it could not make a determination of the time frame of the damage. This line of reasoning proved significant in the 5^th DCA’s subsequent reversal. On appeal, Hicks argued that American Integrity’s exclusion applied only to the losses caused by water on day 14 and onward.

The appellate court noted that the trial court had actually conceded that the policy “might” cover “the loss in the first 13 days.” The court was not persuaded by the trial court’s reasoning that American Integrity was entitled to summary judgment because the court could not determine whether the loss occurred in the first 13 days. It noted that under an all-risk policy, once an insured establishes a loss covered under the terms of the policy, the burden shifts to the insurer to prove the applicability of a particular exclusion.

In addition, while the appellate court did not explicitly agree with Hicks’ reasoning, it did find that the exclusion was susceptible to more than one interpretation. Because insurance clauses are to be construed narrowly, and exclusionary clauses even more narrowly, any ambiguity is construed against the insurer. The court stated, “[i]t is not unambiguously clear that a provision excluding losses caused by constant leakage of water over a period of less than fourteen or more days likewise excludes losses caused by constant leakage of water over a period of less than fourteen days.”

Where, as here, an exclusionary clause could be interpreted in more than one way, the court was inclined to read it in the way most likely to find coverage. Thus, the court reversed the summary judgment that was in favor of American Integrity and remanded the case to the trial court for entry of partial summary judgment in favor of Hicks on the issue of coverage within the first 13 days of the loss. It further found that the burden was on the insurance carrier to prove that a particular loss was sustained after the thirteenth day for the purposes of exclusion under the clause.

The 5^th DCA’s ruling in Hicks places insurers in an unenviable position of having to try to prove what part of a loss occurred within the first 13 days and what part occurred from day 14 on. Even if this is possible—and in many, if not most, cases it may not be—this reasoning strips the exclusion of its teeth as a means to deny coverage. If the insurer is not able to apportion damages between the thirteenth and the fourteenth day of a leak, it would not be permitted to invoke the exclusion. In addition, apportioning a loss in this way is likely a question of fact, making it all but impossible for the insurer to be granted summary judgment on the basis of this exclusion.

Insurers could handle this problem in a couple of ways. First, it is possible that refining the language of the exclusion could render the Hicks court’s finding of ambiguity moot. If the exclusion is written in such a way as to clearly exclude all damage related to a leak persisting over a period of 14 or more days, whether the damage occurred during the initial two weeks or after, this may render moot the court’s reasoning on the alleged ambiguity of the exclusion.

Second, Hicks represents the reasoning of the 5^th DCA only. It is possible that the right test case in a different district may produce a different result. An argument could be made that the exclusion clearly excludes ANY damage resulting from a leak persisting longer than 13 days. However, Florida courts have historically been very liberal when it comes to finding ambiguities in policies. In light of the Hicks ruling, the way ahead may involve refining this exclusion with this problem in mind.

*Michael is a shareholder in our Fort Lauderdale, Florida office. He can be reached at 954.847.4921 or mapacker@mdwcg.com.

_{Defense Digest, Vol. 24, No. 2, June 2018. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2018 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}