Maybe State Farm should advertise to its customers that it will fight them tooth and nail anytime their property gets older, wears out, and results directly or indirectly with loss. This post gives State Farm a three-day winning hat trick following State Farm Wins Alabama Worn Out Roof Damage Case: Lesson About Hail Damage Cases, Expert Testimony, and Investigation Standards, and State Farm Wins Texas Worn Out Roof Damage Case: Lesson About Texas Hail Damage Cases, Expert Testimony, and The Very Unique Texas Concurrent Causation Rule.
A decision made last week in State Farm Florida Insurance Company v. Adele Feltes, 1 addressed State Farm’s denial of coverage for certain water-related damages, highlighting the continued narrowing of coverage under its policies. This case serves as a reminder of the evolving landscape of homeowners’ insurance, particularly with State Farm’s water damage coverage, an issue I’ve previously warned about in Water Loss From Toilet Overflow Is Covered Despite State Farm Denial. State Farm has quietly implemented significant changes in its policy language, diminishing the scope of coverage in water damage scenarios, which can leave policyholders vulnerable during times of need. These water claims procedures were previously noted in The State Farm Water Initiative—Water Restoration and Mitigation Companies, Public Adjusters, and Policyholders Find Out How State Farm Got Tough on Water Losses.
A Tale of Plumbing Woes
The State Farm policyholder Adele Feltes experienced a series of unfortunate plumbing issues in her home. The home, originally built in the early 1960s, had an aging cast iron drain line, which eventually corroded and deteriorated, leading to wastewater escaping and causing damage beneath her home’s foundation. The specific issues included a kitchen sink overflow in late 2018, followed by a toilet overflow several months later. These overflows were symptomatic of a larger systemic plumbing failure.
State Farm, after conducting its own investigation, denied coverage for the cost of accessing the leaking drain line, otherwise known as “tear-out” coverage. This decision was based on the policy’s exclusion clauses, particularly concerning wear and tear and repeated seepage or leakage. Despite a jury initially awarding Ms. Feltes nearly $60,000 in tear-out costs, the appellate court ultimately reversed this decision in part, siding with State Farm’s interpretation of the policy’s exclusions.
Exclusions and the Argument on Coverage
State Farm successfully argued that the repeated seepage or leakage exclusion in its policy applied to the damages in question. Specifically, the policy excluded losses resulting from gradual or repeated seepage or leakage from any plumbing system. The homeowner’s plumbing expert admitted that over several months, wastewater had intermittently escaped the corroded drain line into the surrounding structural fill, clearly meeting the definition of repeated seepage or leakage.
This policy interpretation and these facts led to the appellate court finding that the resulting damage to the structural fill, even if secondary to the initial plumbing issues, was excluded from coverage under the policy. The court emphasized that the exclusion applies regardless of whether the loss occurs abruptly or gradually. This meant that even though the water damage might have appeared episodic, it fell under the exclusion for repeated leakage over time, thereby nullifying the tear-out coverage. The court stated and cited other successful attempts by State Farm to deny water damage caused by leaks:
Although the Homeowner argues otherwise, it matters not that the leak was periodic because the policy does not require a steady drip, just a repeated one. It also matters not that the phrase ‘over a period of time’ is an undefined term in the policy, because it is clear and unambiguous, and obviously met when a leak lasts for several months. See, e.g., Brodzinski v. State Farm Fire & Cas. Co., No. 16-6125, 2017 WL 3675399, at *5 (E.D. Pa. Aug. 25, 2017) (finding exclusion for leakage and seepage of water ‘over a period of time’ unambiguous and concluding that evidence of repeated leakage that lasted long enough to result in rot and mold growth fit within the exclusion) (citing Fifth v. State Farm Ins. Co., No. 11-7440, 2014 WL 1253542, at *5 (D.N.J. Mar. 25, 2014) (finding exclusion for leakage and seepage of water ‘over a period of time’ unambiguous, and concluding that leakage over the course of one month fit within the exclusion)).
State Farm’s Water Loss Initiative
This decision reflects a broader initiative by State Farm that I have discussed in past articles. State Farm’s “Water Loss Initiative” seeks to limit payouts related to water damage claims, and the changes to policy language are a crucial component of this strategy. The company has not been forthcoming in alerting its policyholders about these shifts in coverage, which can lead to a significant gap in consumer expectations versus actual policy protections. This case is yet another illustration of how State Farm has maneuvered to minimize coverage in circumstances involving water-related losses. State Farm’s aggressive stance on water losses directly affects coverage for everyday incidents, such as plumbing failures. This stance creates significant hardships for policyholders who believe they are covered for these common losses, only to find that exclusions buried deep in the policy language strip them of the protections they assumed were in place.
All public adjusters and insurance practitioners should subscribe to IRMI to learn about how other policies treat these plumbing losses. The International Risk Management Institute, Inc., now known as IRMI, was founded in 1978, primarily to educate risk managers, insurance agents/brokers, underwriters, and other insurance professionals. It has developed online risk and insurance publications and discussions about much-needed policy and coverage information in an evolving industry. It has a March 2022 edition explaining the ISO standard language in an article: Homeowners Exception to Overflow of Water Exclusion 2.c.(6) Homeowners 3 Special Form. The article shows how different the ISO language is compared to the State Farm language and provides an example of how a policyholder can be paid through the ensuing water loss:
Unless the loss is otherwise excluded, the HO 3 also covers an accidental discharge or overflow of water or steam from within a plumbing, heating, air-conditioning, or automatic fire protective sprinkler system or household appliance on the residence premises. This coverage includes any costs to tear out and replace any part of the building; however, this applies only when necessary to repair the system or appliance. For example, unknown to her, Pat’s outdoor faucet (and the inside pipe that leads up to it) froze over the winter. When she watered the grass the next spring, the crack in the pipe allowed water to leak through the ceiling of the family room. The water did extensive damage to the ceiling, walls, carpet, and personal property in the family room, which was entirely below ground level. Pat’s HO 3 insurer covered all the damage, including the tearing out and replacement of part of the ceiling to get at the broken pipe. The only expense that was not covered was the cost of the replacement pipe and the labor to do that part of the job. Note that since this accidental discharge of water happened in the dwelling, the insurer would have covered the cost to tear out the ceiling and repair the leak, even if no covered property had been damaged.
It is too bad that Ms. Feltes was not insured by an insurer with the standard ISO language rather than being insured by State Farm. Further, it is too bad that the Florida Office of Insurance Regulation does not demand that Florida insurers warn Floridians of the significance of slight changes in wording that can lead to uninsured policyholders. This was noted in Fighting Insurance Coverage Protection Gaps Is Sound Public Policy.
What This Means for Policyholders
For homeowners, this case serves as an important reminder to carefully review your insurance policies and understand the nuances of coverage—particularly for water damage. The language around exclusions like “wear and tear” or “repeated leakage” can dramatically affect your ability to recover for damages that may initially seem covered.
State Farm nationally and other admitted carriers in Florida particularly, through changes in policy language, have effectively limited the types of damages it will cover, especially under circumstances involving aging infrastructure or plumbing issues that develop over time. This underscores the need for vigilance in both understanding policy changes and in communicating with your insurance agent to ensure that you fully understand your coverage limits and have coverage for common losses that happen to policyholders. Some of these gaps in coverage can be filled by endorsements if your agent will take the time to explain them to you.
This case highlights the importance of clarity in policy language and the need for policyholders to stay informed about the protections their insurance policies provide. With the State Farm Water Loss Initiative actively narrowing coverage, policyholders must be proactive—whether by seeking endorsements that offer broader water damage coverage or going to carriers who write better coverage.
As always, knowledge is your best defense in navigating these complex issues. If you’re unsure about your policy’s coverage for water damage, consider consulting with a professional insurance agent who can help clarify what is, and isn’t, covered.
Thought For The Day
“Someone to be trusted; a courteous, friendly source of help when help is needed; someone you can count on; someone who cares.”
—Former State Farm CEO Edward B. Rust, Jr. defining the Good Neighbor ethos.
1 State Farm Florida Ins. Co. v. Feltes, No. 6D2023-0991, 2024 WL 4899701(Fla. Fla. 6th DCA Nov. 27, 2024).
