Amish Connection, Inc. v. State Farm Fire & Cas. Co.
| Citation | 861 N.W.2d 230 |
| Decision Date | 20 March 2015 |
| Docket Number | No. 13–0124.,13–0124. |
| Parties | AMISH CONNECTION, INC., Appellant, v. STATE FARM FIRE AND CASUALTY COMPANY, Appellee. |
| Court | United States State Supreme Court of Iowa |
Samuel C. Anderson and Joseph G. Martin of Swisher & Cohrt, P.L.C., Waterloo, for appellant.
Mark W. Thomas of Grefe & Sidney, P.L.C., Des Moines, for appellee.
In this appeal, we must decide whether a business insurance policy covers water damage inside a building resulting when a corroded interior drainpipe bursts during a summer rainstorm. The pipe carried rainwater from the roof to a storm sewer. The policy only insures damage “caused by rain” if an insured event first ruptures the roof or exterior walls to allow the rain to enter or if the damage results from melting ice or snow. The district court granted summary judgment for the insurer, concluding the water damage was caused by rain. The court of appeals reversed, concluding that damage from “rainwater” flowing from the broken interior drainpipe is not damage “caused by rain.” We granted the insurer's application for further review.
This case presents our first opportunity to adjudicate coverage claims under a rain limitation in an insurance policy. For the reasons explained below, we conclude the unambiguous language of the rain limitation precludes coverage for the damage caused by the rainwater escaping the ruptured interior drainpipe. We, like the district court, also reject the insured's alternative argument that coverage is available because the damage resulted from the “breaking or cracking of any part of a system containing water or steam.” That argument fails because the policy does not provide coverage for damage “caused by rain,” even if a system containing water was involved. We therefore vacate the decision of the court of appeals and affirm the district court's summary judgment in favor of the insurer.
Amish Connection, Inc. leased space in Crossroads Shopping Mall in Waterloo, where it operated the Amish Connection Store. In 2008, Amish Connection moved into Suite 102. This litigation arises from the failure of a leaky four-inch cast-iron drainpipe that ran above the ceiling tiles and along the interior back wall. This pipe connected to the rooftop drains and carried rainwater down and through the interior of the building to a storm sewer. During heavy rains, leaking rainwater routinely ran down the back wall of the suite. To address the leakage, mall management installed a makeshift wooden trough to catch the rainwater from the back wall and direct it toward a drain. The drainage tile and pipe system in Suite 102 showed “trails of rust left by years of water leak issues.” The drainpipe was hidden from the tenant's view by ceiling tiles and wallboard, and Amish Connection was unaware that it leaked. The drainpipe itself was “extremely rusty” before it failed. Subsequent photos show extensive corrosion on the pipe, especially where it joined the wall.
In May 2010, the owner of Amish Connection approached the mall manager about closing the store until November “because business was bad.” New lease contracts were prepared to allow Amish Connection to close its business to the public through October and reopen November 1. During that period, Amish Connection would continue paying rent for Suite 102 and store property there. On June 14, the new lease agreements were executed. It rained heavily that night. The rainstorm caused no damage to the roof, windows, or exterior walls of the building. The next morning, however, the mall maintenance staff discovered the interior drainpipe had failed, flooding the back room of Suite 102 with up to several inches of rainwater and soaking the carpet in much of the front showroom. The rainwater caused substantial damage to Amish Connection's office, bathroom, and property stored there, including its samples, inventory, office supplies, and business records.
Amish Connection promptly submitted a claim under its business insurance policy with State Farm Fire and Casualty Company (State Farm). Section I of the policy, entitled “LOSSES INSURED AND LOSSES NOT INSURED ,” provides:
The relevant provisions of those two sections state:
The definitions section of the policy defined “Specified Causes of Loss” to include:
14. water damage, meaning accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam.
On June 16, State Farm declined Amish Connection's claim based on the rain limitation in paragraph 6 of the property subject to limitations section. On December 27, Amish Connection filed a civil action against its landlord and the mall operator alleging they had concealed the water infiltration problem the tenant discovered when ceiling tiles were removed after the drainpipe failed. Amish Connection alleged those defendants “took insufficient efforts to remedy the water infiltration problem and Defendants' actions caused further water damage to the lower level unit # 102.” The lawsuit further alleged the mall owner and operator “were guilty of gross negligence and willful misconduct by renting [Suite 102] while knowing of, not disclosing, and not taking remedial action to resolve the significant long-standing water problems.”
On November 23, 2011, counsel for Amish Connection wrote to State Farm asking it to reconsider its denial of the claim and provide coverage for the water damage. State Farm responded on December 22 that it would investigate further and cited paragraph 2(d) excluding coverage for “rust, corrosion, ... and deterioration,” in addition to the rain limitation in paragraph 6. On January 3, 2012, State Farm sent another letter confirming its denial of coverage based on both provisions. On January 20, Amish Connection moved to amend its petition to add State Farm as a defendant to a claim of breach of its insurance contract. Amish Connection later dismissed its claims against the mall owner and operator. The lawsuit proceeded against State Farm alone.
On July 27, State Farm filed a motion for summary judgment based on paragraph 6 excluding coverage for “damage caused by rain.” Amish Connection resisted, arguing that the water damaging the interior of Suite 102 was no longer “rain,” and the actual cause of the loss was the failure of the drainage pipe, falling within coverage under paragraph 14. On October 18, the district court granted State Farm's motion based on paragraph 6, stating “as a matter of law the water running through the pipe which caused the loss was rainwater.” Amish Connection moved for a more specific ruling to address its alternative argument under the exception to the rust-and-corrosion exclusion for water damage resulting from the “breaking or cracking of any part of a system or appliance containing water or steam.” State Farm resisted, arguing that the ruling on the rain limitation was dispositive under the language of the insuring agreement that provides coverage for accidents On December 20, the district court agreed with State Farm's interpretation and denied Amish Connection's motion, stating:
The policy reads that “We insure for accidental physical loss to property covered under this policy unless the loss is: 1) Limited in the PROPERTY SUBJECT TO LIMITATIONS section; or 2) Excluded in the LOSSES NOT INSURED section that follows.” (Emphasis Added). Therefore, if a loss is excluded under either the PROPERTY SUBJECT TO LIMITATIONS section or the LOSSES NOT INSURED section, then it is excluded, and analysis under the other section is not necessary. Therefore, the Court declines to rule on whether the LOSSES NOT INSURED provision applies, as the loss is already excluded by the other section.
Amish Connection appealed, and we transferred the case to the court of appeals. The court of appeals reversed the summary judgment, concluding the “district court erred by finding the rain limitation [in paragraph 6] was applicable to this case.” The court of appeals, citing dictionaries and cases from other jurisdictions, distinguished “rain” from “rainwater”:
The definitions of “rain” and “rainwater,” although similar, encompass two different points in time. As water is falling, it is considered “rain.” After it has fallen—and, as here, been collected on a rooftop and channeled into pipes for transport to a storm sewer—it is considered “rainwater.”... While the water emitting from the burst pipe may fall within the definition of “rainwater,” it does not fall within the definition of “rain”. Because loss caused by “rainwater” is not excluded or otherwise limited under the policy, the district court erred in interpolating the...
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