Filed Under:Claims, Catastrophe & Restoration

Court rules on meaning of homeowner's water 'leakage' insurance exclusion

So, what's a leak?

(Photo: Shutterstock)
(Photo: Shutterstock)

This story is reprinted with permission from FC&&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

A little bit of dripping water is a “leak.” But can the volume ever be too much for the drip, drip, drip to be something other than a leak for purposes of an exclusion in a homeowner’s insurance policy?

A Michigan appellate court recently explained.

Related: Homeowners' claims: Water back-up, overflow or discharge?

Water line separated from wall


Thomas Kaeding, II, was living in Ohio when, he said, the water line separated from the wall in an upstairs bathroom in his home in Ann Arbor, Michigan, causing a significant amount of water to flow into his home for 27 days.

His homeowner’s insurance carrier, Cincinnati Insurance Company, denied his claim, arguing that the policy excluded damage due to “leakage,” and filed a lawsuit against him. Kaeding contended that what had happened in his home was not a “leak.”

The trial court ruled in favor of the homeowner. Pointing to the policy language, it stated that the use of “seepage” and “leakage” in the same phrase as “condensation, humidity, moisture or vapor” supported his position.

In addition, the trial court also was persuaded that Kaeding’s position was correct because the exclusion stated that the “leakage” must occur over a period of weeks, months, or years. According to the trial court, “seepage” and “leakage” were more akin to a slow release of a small amount of water consistent with “humidity, moisture and vapor.” According to the trial court, weeks, months, or years were the periods of time that it would take for a small discharge of water to cause damage.

Related: Here's why some water damage claims aren't covered

Trial court: Homeowner entitled to coverage


Furthermore, the trial court stated that, reading the exclusion as a whole, it appeared that Cincinnati had intended to exclude coverage for damage caused by neglect, failure to maintain, failure to be present in the home, and failure to occupy the home. Because the insurer had not asserted another exclusion to deny coverage, the trial court held that it was not entitled to summary disposition. Ultimately, the trial court concluded that Kaeding was entitled to coverage, and the trial court granted summary disposition in his favor.

Cincinnati appealed, arguing that the trial court had erred in finding that the “leak” exclusion did not apply to Mr. Kaeding’s loss.

Policy language


The Cincinnati Insurance policy provided:

1. “We” do not insure “physical loss” caused by:

* * *

h. Constant or repeated seepage or leakage of water or the presence or condensation of humidity, moisture or vapor, over a period of weeks, months or years unless such seepage or leakage of water or the presence or condensation of humidity, moisture or vapor and the resulting damage is unknown to all “insured” and is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure. 

Exclusion didn't apply


The appellate court affirmed.

In its decision, the appellate court noted that the insurance policy did not define the term “leakage.” It then concluded that the commonly used meaning of “leak” referred to “a gradual or low volume water event.” For the exclusion to apply, the appellate court added, the “leakage” or “seepage” had to be “constant” or “repeated” “over a period of weeks, months or years.”

Related: Do you have a water leak? Here are 8 places to check

This time requirement of weeks, months, or years was necessary for a “low volume” gradual water “leakage” or “seepage” to cause significant damage to a home, the appellate court noted. The terms of the exclusion, it continued, demonstrated the insurer’s intent to avoid coverage for losses that were caused by a homeowner’s neglect, failure to maintain, and failure to occupy a home.

This did “not describe what occurred in [Mr. Kaeding’s] home,” the appellate court ruled. The amount of water that was released into his home “would have caused significant damage within hours or days because the separated pipe essentially caused flooding.” Consequently, it concluded, the trial court was correct in finding that the exclusion did not apply to Mr. Kaeding’s loss.

The case is Cincinnati Ins. Co. v. Kaeding, No. 332559 (Mich. Ct. App. July 20, 2017).

Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at smeyerowitz@meyerowitzcommunications.com.

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