A recent New Jersey appeals court ruling found that water damage to a vacation home caused by leaking pipes was not covered under a “named perils insurance policy.” In Cusamano v. New Jersey Underwriting Association, a pair of summer vacation homeowners found their kitchen soaked in water, including the cabinets, floor, and ceiling. They made an insurance claim with their homeowners’ insurer after discovering that the damage was caused by a rotted connection in a bathtub drain line. The carrier denied the claim stating that “water is not one of the named perils under this policy.” They then challenged the denial of the claim in court.
The trial court found coverage stating that the policy did not have an exclusion for “damages caused by water leaking from pipes,” but the insurance carrier appealed. The appeals court first noted that any insurance policy must be liberally interpreted to provide coverage to the full extent that any fair interpretation will allow. However, when the policy terms are clear the court may not interpret the policy so as to write a better policy than the one purchased. In this case the homeowners purchased a “named perils insurance policy” that only provided coverage for the particular risks listed in the policy. The only risk related to water that was covered by the policy was the breakage of water pipes “by explosion.” Water damage from rotted pipes was not listed as a covered peril, and therefore, not a “peril insured against” under the policy.
The homeowners argued (and the lower court agreed) that there was coverage because a water damage exclusion in the policy did not list water damage “from leaking pipes” as an excluded cause of loss. The appeals court, however, found that the exclusion did not extend the named perils coverage, but instead restricted it. The only fair interpretation of a policy that limited coverage to named perils, was that the exclusions would only apply to the named perils. Exclusions do not add coverage, but rather limit the coverage provisions of a policy. In this case, the only relevant named peril was breakage of water pipes by explosion. The court found that the exclusions should not even be considered because the policy did not name water damage caused by rotting pipes as a named peril.
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