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General Accident Insurance Company v. Unit/Waterford-Fair Oaks, Ltd.

Because the insured suffered no loss or damage caused by or resulting from covered water damage and because the underground pipes were not covered property, the insurer is not obliged to pay the cost to tear out and replace any part of the building or structure to repair damage to the underground pipes.

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Appeal from the United States District Court For the Western District of Texas, San Antonio Division

The plaintiff, owner of apartment buildings, sued the defendant, its insurer, under a commercial property insurance policy to recover for damage to the foundations of buildings resulting from seepage or leakage from underground pipes and drains and for the cost of accessing and repairing that underground plumbing. The district court’s summary judgment held that the policy does not cover the losses. We affirm. First, the policy excludes coverage of “loss or damage caused by or resulting from . . . [c]ontinuous or repeated seepage or leakage of water that occurs over a period of 14 days or more.” The damage to the apartment building foundations indisputably resulted from soil expansion caused by continuous or repeated seepage or leakage fitting that description. Second, the policy also explicitly provides that “[c]overed property does not include . . . [u]nderground pipes, flues or drains.” The seepage or leakage indisputably came from underground pipes and drains beneath the apartment foundations. Thus, because the underground plumbing was not insured: (a) the policy’s exclusion from coverage of loss or damage “caused by or resulting from . . . [r]ust, corrosion . . . . deterioration . . . . in property that causes it to damage or destroy itself” is irrelevant and does not apply; and (b) the exception to or “repeal” of that exclusion for “specified causes of loss” defined by the policy is also irrelevant and inapplicable. Third, “[i]f loss or damage caused by or resulting from covered water . . . damage loss occurs,” the policy provides for an additional coverage extension to “pay the cost to tear out and replace any part of the building . . . to repair damage to the system or appliance from which the water . . . escapes.” But because there was no loss or damage caused by or resulting from covered water damage and because the underground pipes were not covered property, the insurer is not obliged to pay the cost to tear out and replace any part of the building or structure to repair damage to the underground pipes.

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