Insurance Claim Denial – Water Leak

For lawyers who handle claims against insurance companies, here is a case regarding a claim against a homeowners policy and a water leak.  The case is from the Western District of Texas, San Antonio Division.  The case is styled, William Burman v. State Farm Lloyds.  It is a partial summary judgment case.

Burman had a homeowners policy of insurance with State Farm.  Burman experienced a water leak and filed a claim.  State Farm retained an engineer, Lara, to determine whether the leak caused the foundation to move.  Lara’s report stated “that the observed foundation movements are primarily the result of seasonal moisture changes, and vegetation effects.  Also, that a line identified by American Leak Detection was leaking and exacerbated the foundation movements in an isolated area of the residence.

The area effected by the leak was paid for by State Farm but the claim for other areas was denied asserting the foundation problems predated the leak and the leak damage did not warrant underpinning.

Burman hired an expert who stated otherwise.

Burman sued State Farm for not paying the entire claim.

In diversity cases, like this one, the job of the Court is to apply Texas law, which says the general rules of contract construction apply to insurance policies.  The Court is to strictly construe ambiguities against the insurer.  When there is no ambiguity, the Court’s duty is to give the words used in the contract, their plain meaning.

The relevant part of the policy reads:



We insure for accidental direct physical loss to the property described in Coverage A, except as provided in SECTION I–LOSSES NOT INSURED.

Section I Losses Not Insured provides:


1. We do not insure for any loss to the property described in Coverage A which consists of, or is directly and immediately caused by, one or more of the perils listed in items a. through n. below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: …

l. settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundation, walls, floors, roofs or ceilings; ….

The Dwelling Foundation Endorsement (“DFE”)amended the policy as follows:

Dwelling Foundation Coverage. We cover loss caused by and consisting of settling, cracking, shrinking, bulging,or expansion of the foundation, floor slab or footings that support the dwelling caused by seepage or leakage of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system.

This coverage includes the cost of tearing out and replacing any part of the building necessary to repair the system from which the leakage or seepage occurred.

We do not cover loss to the system from which the water or steam escaped.

Limit of Liability. Our limit of liability for this coverage will not exceed an amount equal to 15% of the COVERAGE A—DWELLING limit applicable on the date of loss.

The issue in this case is whether the claimed foundation damage is covered by Coverage A or whether it falls in an exclusion.  If the damage is covered by Coverage A, the DFE provides the sole coverage for the damage.  If the DFE applies then any successful breach of contract claim is limited to 15 percent of the dwelling limit.

The Court found the policy language unambiguous.

After reviewing the policy and the evidence before the Court, the Court concluded that the DFE is the only coverage and its liability limit applies.

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