Liebel v. Nationwide Ins. Co. of Florida, No. 4D08-3356, ___ So. 3d ___, (Fla. 4th DCA, October 7, 2009)

On February 14, 2003, Liebel noticed a wide gap between the floor and the wall in her living room. Over the following two and a half weeks, Liebel's living room floor began to sag and bend, and then every room of the home detached from the walls, and a wide crack formed in the middle of the living room. It turned out that the crack caused a ruptured water line under Liebel's home, and the escaping water caused the soil beneath the home to erode, causing the foundation to settle, and the damage to Liebel's home. Liebel sought coverage for the damage under her all-risk homeowner's insurance policy with Nationwide. 

Nationwide denied coverage for the damage, alleging that the loss was specifically excluded by the following exclusions in the policy:

1. We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another cause or event contributed concurrently or in any sequence to cause the loss.

a) Earth Movement and Volcanic Eruption. Earth movement means: earth movement due to natural or unnatural causes, including mine subsidence; earthquake; landslide; mudslide; earth shifting, rising or sinking (other than sinkhole collapse). Volcanic eruption means: eruption; or discharge from a volcano.
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3. We do not cover loss to property described in Coverages A and B resulting directly from any of the following:
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e) Continuous or repeated seepage or leakage of water or steam over a period of time from a heating, air conditioning or automatic fire protective sprinkler system; household appliance; or plumbing system that results in deterioration, rust, mold, or wet or dry rote [sic]. Seepage or leakage from, within, or around any shower stall, shower tub, tub installation or other plumbing fixture, including their walls, ceilings or floors, is also excluded.

Liebel argued that the loss was covered based upon the following provision of the policy:

If loss caused by water or steam is not otherwise excluded, we will cover the cost of tearing out and replacing any part of the building necessary to repair or replace the system or appliance. We do not cover loss to the system or appliance from which the water or steam escaped.

f) (1) wear and tear, marring, deterioration;

If any items f)(1) through (7) cause water to escape from a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance, we cover loss caused by the water not otherwise excluded. We also cover the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. We do not cover loss to the system or appliance from which the water escaped.

Under exclusions 3.a) through 3.f), any loss that follows is covered unless it is specifically excluded.

In deciding the case, Florida’s Fourth District Court of Appeal explained the classic rules of insurance policy interpretation. In Florida, insurance contracts are interpreted according to the plain language of the policy. However, if the terms of a policy are amenable to two or more reasonable interpretations, one that provides coverage and one that does not, the policy is considered ambiguous. Ambiguous coverage provisions are interpreted against the insurer that drafted the policy and in favor of the insured. Further, the Court noted ambiguous “exclusionary clauses are construed even more strictly against the insurer than coverage clauses.” The Court also noted the failure of a policy to define a certain term does not make the policy ambiguous; when the insurer has not defined a term, the common definition prevails.

Applying these rules to the policy, the Fourth District held that the plain and unambiguous language of the policy’s earth movement exclusion excluded from coverage the damage to Liebel’s home. The policy specifically excluded “loss to any property resulting directly or indirectly” from “earth movement due to natural or unnatural causes.” “Earth movement” included “earth shifting, rising, or sinking.” Liebel, 2009 WL 3189332 at *4. As the loss to Liebel's home was caused by the shifting of earth under the home, which was caused by earth shifting from unnatural causes, the water line rupturing, the loss was specifically excluded from coverage.

However, the Court agreed with Liebel's contention that the cost of repairing the water line was covered by the policy. Because the policy stated that it did not cover damage caused by water from a plumbing system that was otherwise excluded, but then stated that it covered the cost of repairing a system that caused water damage, the policy was ambiguous because there were two reasonable interpretations of the provisions.

Specifically, one may interpret the “otherwise excluded” language to preclude coverage for all damages caused by a matter otherwise excluded, including the cost of tearing out and replacing any part of Liebel's home necessary to repair the ruptured water line. In contrast, a reasonable person could interpret the Policy to exclude from coverage the damage caused by earth movement, but include the cost of repairing the water line that caused the loss, as it is a plumbing system that caused water damage due to its deterioration from wear and tear.

Liebel, 2009 WL 3189332 at *6. Following the principle that ambiguities in insurance contracts are construed in favor of the insured, the Court held that the cost of tearing out the floor and repairing the water line was covered by the policy. The Court noted that this finding was supported by the principle that an all-risk policy covers a loss unless that loss is specifically excluded; the policy did not specifically exclude the cost of repairing a plumbing system from coverage, it only specifically excluded damage caused by earth movement.

Court Slip Opinion