Leroy Brown v. Mid-Century Insurance Company

(Water Damage Exclusion in First Party Homeowners Policy Applied to Bar Coverage of Damage Caused By Leaking Hot Water Pipe)

In Leroy Brown v. Mid-Century Insurance Co., 215 Cal.App.4th 841 (April 24, 2013), the California Second District Court of Appeal affirmed the trial court’s entry of summary judgment in favor of Mid-Century Insurance Company (“Mid-Century”) regarding the absence of coverage for a first-party property loss involving water damage sustained by a home owned by plaintiffs, Leroy and Terry Brown (the “Browns”). The parties’ dispute arose out of water damage sustained by the Browns’ home due to a leaking copper hot water line attached to a hot water manifold in the Browns’ home. The leak was discovered after the Browns began observing condensation on the windows of their 3-story, split-level home and on drywall around the windows. There was moisture from the windowsills running down the walls and mildew on some of the windows and walls. The Browns cleaned the condensation off the windows however, it returned the next day. About a week later, the Browns began noticing mold forming around the inside of their windows and on the walls in the living room and kitchen, developing everywhere simultaneously. Every room that had a window had mold or mildew.

The Browns first noticed condensation on the windows on February 18, 2009. Subsequently, on March 17, or March 18, 2009, Leroy Brown’s brother, Robert Brown, crawled under the house and observed moisture. However, he could not locate the source of any leak. Subsequently, on March 18, 2009, the Browns hired a plumber, Michael Lewis, to find and fix the leak. Ultimately, Lewis determined that the leak involved a hot water line. He then determined that the leak originated underneath the laundry room. As a result, he jackhammered out a portion of the concrete foundation and located the hot water manifold with attached leaking copper hot water line.

The Browns tendered the costs of repairing the damage sustained by their home to their homeowners insurer, Mid-Century. The policy issued by Mid-Century listed certain types of loss or damage that were not covered under the policy “however caused, including loss or damage consisting of, composed of or which is water damage.” However, the policy also included an “extension of coverage” which limited water damage coverage as follows:

. . . .”for direct physical loss or damage to covered property from direct contact with water but only if the water results from . . . (i) from within any portion of: (a) a plumbing system.” The policy described what was not included in the limited water damage coverage: “A sudden and accidental discharge, eruption, overflow or release of water does not include a constant or repeating gradual, intermittent or slow release of water, or the infiltration or presence of water over a period of time. We do not cover any water, or the presence of water, over a period of time from any constant or repeating gradual, intermittent or slow discharge, seepage, leakage, trickle, collecting infiltration, or overflow of water from any source . . . whether known or unknown to any insured.

The Mid-Century policy also included a mold exclusion.

After investigating the loss, Mid-Century declined coverage of the Browns’ claim based on the water damage and mold exclusions in its policy. Thereafter, the Browns filed an action for breach of contract and bad faith against Mid-Century. Subsequently, Mid-Century filed a motion for summary judgment or in the alternative for summary adjudication arguing that the water damage exclusion in its policy applied to bar coverage of the Browns’ claim. Mid-Century relied on the declaration of an expert opining that the copper hot water pipe leaked due to the failure to include plastic protective sleeves so as to prevent corrosion of the pipe when it came in contact with the concrete foundation slab of the Browns’ home. The expert stated that the hole in the section of the copper pipe he inspected had formed as result of ordinary wear and tear to the pipe which corroded because it had been defectively embedded into concrete without the required protective sleeve. The expert also opined that the deterioration process began slowly with a pinhole-sized opening in the pipe which then accelerated as the hole began to widen. Based on the expert’s testimony, Mid-Century argued that the “limited extension” of coverage for water damage afforded by its policy did not apply to the loss as it did not involve “a sudden and accidental discharge, eruption, or overflow or release of water.” The trial court agreed with Mid-Century and entered summary judgment in its favor.

In affirming the trial court’s decision, the Court of Appeal stated as follow:

The Browns' primary argument on appeal is that Kreitenberg created a triable issue of fact by stating in his declaration in opposition to Mid-Century's motion for summary judgment that “the pipe burst suddenly—in a 'nano-second,' spraying water in the crawlspace.” This testimony, however, does not change the fact that the release of water, even if it commenced with a nanosecond “breach in the wall of the pipe” and resulted in a “mist, stream and spray;” was constant or intermittent, and occurred over a period of “a month or two” (according to the Browns) or five months (according to Mid-Century). Even if, as Kreitenberg testified, the pipe “failed suddenly,” the water damage according to Kreitenberg resulted from hot water “continuto spray and stream (not drip) out the holes until the water line was shut off.” The Browns' policy with Mid-Century did not cover such a “'constant or repeating ... intermittent or slow release of water,'“ whether the release was a drip, spray, or stream. As the trial court recognized, “everybody agrees,” even Kreitenberg, “that this was something that occurred over a period of time.” Thus, whether the water leaked or sprayed or streamed out of the hole(s) in the pipe, the water leaked, sprayed, or streamed out constantly and gradually over time. Such a water discharge does not qualify as “sudden” under the plain meaning of the terms of the Browns' policy.

The Court of Appeal also held that the “efficient proximal cause doctrine” did not apply to the Browns’ mold claim based on the following reasoning:

The efficient proximate cause doctrine does not apply to the Browns' mold claim for two reasons. First, the efficient proximate cause doctrine applies when ““a loss is caused by a combination of a covered and specifically excluded risks.'“ (De Bruyn, supra, 158 Cal.App.4th at p.1216.) The only potentially “covered risk” the Browns point to is “the abrupt and sudden discharge of water.” As explained above, as a matter of law no sudden discharge of water occurred. Thus, this is not a situation where there is both a covered risk and an excluded risk. There are only two excluded risks: discharge of water that is not sudden, and mold.

Second, two conceptually distinct risks or events did not cause the Browns' loss. In Finn v. Continental Ins. Co. (1990) 218 Cal.App.3d 69, where water leaking from a broken sewer pipe “for months or years” had damaged the foundation of the plaintiffs house and the insured's “broad peril policy” excluded damages from 'continuous or repeated seepage or leakage of water,” the court held that the efficient proximate cause doctrine did not apply. (Id., at pp. 70, 71.) The court stated: “Plaintiff argues that the break in the pipe was the efficient predominating cause, the leakage merely an immediate one. That argument is premised on viewing the leakage and the break as two conceptually distinct events, linked only casually. But 'leakage' and 'seepage' necessarily imply some break or gap in the thing leaking.” (Id. at p. 72.) The court held that the efficient proximate cause doctrine “has no application here because leakage and broken pipes are not two distinct or separate perils.... Leakage or seepage cannot occur without a rupture or incomplete joining of the pipes. This case involved not multiple causes but only one, a leaking pipe.” (Ibid.; cf. Brian Chuchua's Jeep, Inc. v. Farmers Ins. Group (1992) 10 Cal.App.4th 1579 [damage caused by a leak from a crack in an underground gasoline storage tank caused by an earthquake was covered despite a pollution exclusion because under the efficient proximate cause doctrine there were “two causes: the earthquake and the leaking tank”].) Similarly, the breaking of the Browns' pipe was not “conceptually distinct” from the leaking, spraying, or streaming of water. Like Finn, this case involves only one cause, a leaking/ spraying/streaming pipe.

Lastly, the Court of Appeal held that the exclusions in the Mid-Century policy were “conspicuous, plain and clear.”