Our client has a special form, businessowners property policy for a large industrial building. The building is a manufacturing plant that has a typical fire suppression sprinkler system. The system includes an underground pipe loop that runs around the perimeter of the structure on the outside, and from the loop branch in-line pipes running into the structure. From the in-lines under the floor run risers up to the clusters of overhead sprinkler heads above. The system has a jockey pump that keeps the fire suppression system lines all at a constant pressure of 125 PSI, and a second, large fire pump kicks on if ever the jockey pump cannot maintain the constant pressure, i.e., when there is significant water usage by the system suppressing a fire in the building.

A few months ago one of the in-lines running into the building burst below the plant’s concrete floor(the cause undetermined)at night after regular business hours. The high pressure water erupted up, busted through the concrete floor of the plant, and flooded the building with several feet of water, mixed with sand and mud. The incident caused great water damage to the building and its contents.

Shortly after that first break in the system, a second break occurred in the loop outside, on the opposite side of the plant hundreds of feet away from the first break. Fire system repair technicians concluded that the system’s sudden and tremendous demand for water probably caused the second break. The second break was not as big and came up outside, where most of its water ran off and caused little damage.

The insurer has denied the entire claim based on the exclusion: “Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces, (b) Basements, whether paved or not . . . All whether naturally occurring or due to man made or artificial causes.”

We believe the substantial water damage, as well as the emergent repairs, are indeed covered losses.

We believe the insurer’s position is the policy only covers water leaking from the sprinkler heads or from structures above the floor, and that the “water under the ground surface” exclusion bars any coverage for damage because the pipes in this loss broke under the floor.

We would appreciate your insightful analysis and guidance.

Michigan Subscriber

This question is tricky, especially with the wording (which is no longer in the ISO BOP form), “All whether naturally occurring or due to man made or artificial causes.”

We contend that the water under the ground surface exclusion was never intended for the type of loss you describe but for outdoor water (like naturally occurring surface water). Since ISO forms no longer carry this wording, that intent may be true.

However, your form does carry this wording, and on a technical reading, we can see how water leaking from a pipe under the floor (if it is underground) could fit into this exclusion. But, you describe the water as “erupting up,” which doesn’t really jibe with the description in the exclusion for water “pressing on, flowing or seeping through.”

Since “sprinkler leakage” is an undefined term, it is our opinion that it is not limited to water leaking from sprinkler heads.

Because we see enough policy language that would allow for coverage of this loss, it is our opinion, based on the facts and policy language you’ve provided, that it would be covered. This is not to say that a court might not decide differently.