Federal Court In Florida Finds Commercial Property Policy’s Water Exclusion Precludes Coverage

A federal court in Florida held that a commercial property policy’s water damage exclusion and sewer or drain definition endorsement operated together to preclude coverage for damage arising out of a collapsed sewer line. Purdy Lane, Inc. v. Scottsdale Ins. Co., No. 20-80966-CIV-MARRA, 2021 U.S. Dist. LEXIS 27417 (S. D. Fla. Feb. 11, 2021).

The insured sued its insurer for breach of a commercial property policy and requested a declaration of coverage for damage sustained to the insured property as a result of “substantial water damage.” The parties agreed that the source of damage was a water and/or sewer backup emanating underneath the driveway to the property. The insurer moved for summary judgment asserting that the insured’s claims were excluded by the policy’s water damage exclusion.

The court granted the motion, reasoning that the exclusion, when read in conjunction with the sewer or drain definition endorsement, barred coverage for water that backs up or overflows from the type of failed sewer line described in the complaint. The court rejected the insured’s argument for coverage under the policy’s covered water damage provision, noting that the provision expressly states that it does not encompass loss otherwise excluded under the water damage exclusion. The district court also rejected the insured’s argument, citing to prior Florida decisions that a water damage exclusion applies solely to water that did not originate from the plumbing system on the insured premises. The insured argued that due to the collapse of the sewer line and the breaking apart of the plumbing system, water stood still and could not be carried in any direction, therefore, making the water exclusion inapplicable. The court rejected this argument, stating there is “no requirement that the water be actively flowing through the ‘underground pipe, channel or conduit’ at the exact moment of the loss.” The court distinguished the policies which were the basis for the prior line of Florida decisions, noting that the sewer or drain definition endorsement specifically alters the water damage exclusion to define a sewer as “any pipe, channel or conduit for carrying water, wastewater or sewage on or away from the premises,” which is significant and serves to expand its scope.