Water Damage Exclusion and ACC Clause Bar Coverage for Damage to Pool
In South Carolina Farm Bureau Mut. Ins. Co. v. Durham, 2009 WL 72041 (S.C.) the respondents' (the Durhams) home and in-ground pool were covered by a homeowner's policy of insurance issued by appellant South Carolina Farm Bureau Mutual Insurance (“South Carolina”). At one point, the Durhams drained the water from their pool in order to clean it. Before the pool was fully emptied, the area experienced extensive rainfall. The pool was then fully emptied and, within two to three days of being fully emptied, the pool “floated” out of its foundation and rose from the ground, causing damage to the pool and deck.
The Durhams' expert explained that pressure from underground water, the presence and depth of which varied from place to place, can result in a pool “floating” if the pool is drained. The expert further explained that this can be avoided by unscrewing a plug in the drain system, allowing the ground water that is higher than the base of the pool to enter and relieve pressure upon the pool.
The Durhams filed a claim under their homeowner's policy. Although both parties agreed that the policy applied to the pool, South Carolina denied coverage. The main point of contention in the case was what “caused” the Durhams' pool to float. South Carolina contended that it was due to the presence of underground water pressure in conjunction with the Durhams draining the pool without pulling the plug. South Carolina argued that if the water pressure was a factor of any kind in causing the loss—even an indirect or remote one—the language of the policy excluded the loss.
The circuit court found that the cause of the pool floating was the Durhams removing all of the water without removing the plug. The court stated that the word “cause” was not defined in the policy and that “[w]here a term is not defined in an insurance policy, it is to be defined according to the usual understanding of the term's significance to the ordinary person.”
Further, the circuit court explained, “[t]he meaning of the pivotal word 'cause' has primarily developed in the conte[x]t of tort and insurance law where causation is an essential element in establishing liability”, and applied tests utilized in determining legal causation. The court found that the draining was a “but for” cause of the floating and that the underground water pressure was a natural, static force which could not be an intervening cause. The court also concluded that the rainfall prior to the floating was not a factor, as both parties had stipulated that the hydrostatic pressure was present both before and after the pool was emptied.
In the decision by the Supreme Court of South Carolina, the court held that the circuit court incorrectly defined the term “cause” in construing the policy. Although the circuit court correctly noted that the term “cause” was not defined by the policy and therefore must be defined according to the usual understanding of its significance to the ordinary person, the circuit court, rather than attempting to ascertain the understanding to the ordinary person, had looked instead to tort law and tests “utilized in determining legal causation.”
The court further explained that “cause” in the context of an insurance policy and in the usual understanding of the term's significance to the ordinary person was not the same as legal causation. The usual understanding of the word “cause” did not require that an event or condition be the proximate cause, and the dictionary defined “cause” as “[s]omething that produces an effect, result, or consequence” and “[t]he person, event, or condition responsible for an action or result.”
In addition, the court stated that in applying that definition of “cause” the “but for” test was appropriate. Here, though, while it was true that “but for” the Durhams' drainage of the pool the damage would not have occurred, it was also true that “but for” the underground water pressure, the damage would not have occurred. Therefore, the underground water pressure was a “cause” of the damage.
While case law from other jurisdictions had demonstrated two main tests—the efficient proximate cause doctrine and the concurrent cause rule—in the instant case neither doctrine applied since the policy contained an anti-concurrent causation clause. That exclusion provided that “[s]uch loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” Consequently, though the underground water pressure was not the sole cause of the loss or even the efficient proximate cause, it was a cause of the loss and so the exclusion applied.
In finding coverage, the circuit court found that the exclusion regarding water damage did not contemplate the respondents' situation, since the definitions of water damage described events or conditions not existing at the time the policy was written, such as floods, waves, etc.
The supreme court disagreed, determining that the language of the water damage exclusion did not support the circuit court's interpretation, as nothing in it excluded an existing condition as a cause. Moreover, the exclusion's use of the word “exerts” in the present tense suggested that an existing condition was contemplated by the exclusion.
Therefore, the court reversed the circuit court's holding and found that underground water pressure was at least one cause of the damage to the Durham's pool and, under the exclusions and anti-concurrent causation clause of the policy, the loss was excluded from coverage.