An exclusion for water that “backs up or overflows” from a sewer or drain applied even where a downstream blockage prevented the water from ever entering the sewer or drain. ( Cardio Diagnostic Imaging, Inc. v. Farmers Insurance Exchange (2012) 212 Cal.App.4th 69)
Facts
Cardio Diagnostic Imaging, Inc. (Cardio) was the tenant in a suite on the first floor of a building. A toilet overflowed on the third floor of the building. The overflow occurred because there was a blockage in the sewer line approximately twenty feet away from the toilet, and because the toilet’s water intake valve malfunctioned and caused the blocked sewer line to fill with water. The overflow caused extensive damage to Cardio’s first-floor suite and equipment, including a CAT scan imaging machine.
At the time of the loss, Cardio was named as the insured on a first-party commercial property insurance policy issued by Farmers Insurance Exchange (Farmers). The policy excluded damages caused directly or indirectly by water that “backs up or overflows” from a sewer or drain. The policy also provided that the exclusion applied “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” In addition, the policy excluded damage caused by “[f]aulty, inadequate or defective … [d]esign, specifications, workmanship, repair, construction, renovation, remodeling, … [or] [m]aterials used in repair, construction, renovation or remodeling.”
Cardio submitted a claim to Farmers, which Farmers denied. Cardio then filed a lawsuit against Farmers, alleging claims for breach of contract, bad faith and declaratory relief. The trial court entered summary judgment in favor of Farmers, and Cardio appealed.
Holding
The Court of Appeal affirmed the summary judgment in favor of Farmers.
Cardio argued that the exclusion for water that “backs up or overflows” from a sewer or drain applied only to water that exited a sewer or drain, and did not apply to water that never entered a sewer or drain because of a blockage downstream. The Court of Appeal disagreed, noting that the exclusion applied to water that “backs up or overflows” from a sewer or drain. The appellate court concluded that a lay person would understand the exclusion to apply both to water that “backs up” (comes up) out of a sewer or drain and to water that “overflows” (spills over) from a sewer or drain due to a blockage downstream. As such, Cardio’s claim was excluded from coverage under the Farmers policy.
Comment
The holding in this case is generally consistent with the holding in Penn-America Insurance Co. v. Mike’s Tailoring(2005) 125 Cal.App.4th 884. In Mike’s Tailoring, the California Court of Appeal held that an exclusion for damage caused by “water that backs up through sewers or drains” applied even though (1) the liquid that caused the damage was sewage, not clean “water,” (2) the sewage merely accumulated (and did not reverse flow) and (3) the blockage occurred in a drain line on the insured’s premises (not in the “public” portion of drain line).