In People’s Trust Insurance Company vs. Sheila Banks, et.al., No. 3D22-1436 (August 16, 2023), the Third District Court of Appeal (“Third DCA”) issued two significant findings: (1) wear and tear as well as deterioration are “acts of nature,” and (2) the specific language in a Limited Water Damage Endorsement is key to the application of that endorsement.
This case stems from damage caused by the deterioration of cast iron plumbing under the insureds’ floor. They sought coverage under their policy for both the water damage to the property and the cost of excavating the pipes under the floor. The policy contained both a Water Damage Exclusion endorsement that specifically excluded coverage for discharge from a plumbing system “caused by or resulting from…any act of nature,” and a Limited Water Damage Endorsement that provided a maximum of $10,000 for “sudden and accidental direct physical loss to covered property by discharge or overflow of water or steam from within a plumbing … system.” That Limited Water Damage Endorsement specifically stated, “this limit includes the cost of tearing out and replacing any part or portion of the covered building … necessary to access or repair … the system.”
Based on these policy provisions, People’s Trust issued a policy limit payment of $10,000. In a letter to the insureds, People’s Trust explained that coverage for the claim existed solely based on the Limited Water Damage Endorsement; if the Limited Water Damage Endorsement did not exist, the Water Damage Exclusion would have excluded the claim.
At the summary judgment hearing, the insureds argued that the Water Damage Exclusion did not apply because the wear and tear and deterioration were not caused by an “act of nature” – that corrosion of the pipes was a “natural process” rather than an “act of nature.” The trial court agreed, entering summary judgment in favor of the insureds. It ruled that wear and tear and deterioration were not caused by an “act of nature,” and that the Limited Water Endorsement “did not apply to the cost of tearing out and replacing the plumbing.”
The Third DCA disagreed, declining “to interpret the insurance policy language at issue in such a way as to separate the ordinary meaning of ‘act of nature’ from ‘natural process.’ To conclude that the deterioration of the Insureds’ old cast iron plumbing pipes is not an ‘act of nature’ would lead to an absurd result.” That is, if the damage were not an act of nature, the Water Damage Exclusion would not apply, and the insureds would be able to recover beyond the $10,000.00 limit of the Limited Water Coverage Endorsement despite the policy’s specific exclusions. In reaching this decision, the Third DCA cited to similar opinions from the Fourth and Fifth District Courts that interpreted the phrase “act of nature” to mean “ordinary natural processes rather than extraordinary, unforeseen events.”1
The insureds also argued that the Limited Water Damage Endorsement did not apply to the cost of tearing out and replacing the plumbing system, so that their recovery should not be limited to $10,000.00. The trial court agreed with the insured and granted summary judgment. Again, the Third DCA disagreed with the trial court and held that the Limited Water Damage Endorsement “expressly provides that ‘[t]he total limit of liability for all damage to covered property provided by this endorsement is $10,000.00 per loss. This limit applies to all damaged covered property under Coverage A, B, and C combined,’ and ‘[t]his limit also includes the cost of tearing out and replacing any part or portion of the covered building…necessary to access or repair that part or portion of the system…from which the discharge occurred or caused the overflow.’”
In asking the court to find that the $10,000 limit did not apply to the tear out costs, the insureds relied on Security First Insurance Co. v. Vazquez, 336 So. 3d 350, 351 (Fla. 5th DCA 2022). However, the Third DCA pointed out that Security First Insurance Co. v. Vazquez is distinguishable from the present case because the Security First policy was actually ambiguous about whether or not tear out costs were subject to the $10,000 limit. The policy was ambiguous because tear out costs were not specifically referenced in the Security First Limited Water Damage Endorsement. In this case, the Limited Water Damage Endorsement specifically states that the limit applies to the cost of “tearing out and replacing” the plumbing system. The Third DCA instead cited to and applied the reasoning set forth by the Fourth DCA in Herrington v. Certain Underwriters at Lloyd's London 342 So. 3d 767, 770 (Fla. 4th DCA 2022) (“The policy language covers ‘loss caused by the water including the cost of tearing out’ parts of the structure to repair the system which leaked. ‘Tear out’ costs are thus part of the water damage loss. Therefore, the endorsement limiting all water damage loss includes tear out expenses.”).
In short, the Third DCA made clear that it will not interpret policy provisions to lead to absurd results, so that, for example, differentiating between “acts of nature” and “natural processes” leads to coverage for damages explicitly excluded by the relevant policy. It also made clear that coverage limitations on an endorsement will be applied only to those items specifically listed. If “tear out” costs are listed in the Water Damage Limitation Endorsement, then they will be subject to the $10,000 limit, but if they are not specifically listed, then they will not be subject to the endorsement.
1 See Dodge v. People's Tr. Ins. Co., 321 So. 3d 831, 835 (Fla. 4th DCA 2021) (“Corrosion…is an act of nature or a naturally occurring force. Thus, the rust or corrosion occurred because of a natural act.”); Rosa v. Safepoint Ins. Co., 350 So. 3d 468, 471 (Fla. 5th DCA 2022) (“[T]he rust or other corrosion that occurred in the pipes in [the insured's] dwelling, regardless of whether it was perhaps preventable or controllable, was a naturally occurring force and thus an act of nature. As an act of nature, the loss came within the policy exclusion for ‘any act of nature.’”).
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