“Tear Out” Coverage Did Not Apply to Repair Corroded Pipe

Oct 12, 2021

Florida Insurance Matters is a monthly update on Florida insurance-related legal developments by the Colodny Fass Insurance Litigation Practice, recently recognized as the Insurance Litigation Department of the Year in South Florida by the Daily Business Review.


Amy L. Koltnow, a Colodny Fass Shareholder, focuses her practice on representing insurance companies in complex insurance litigation and counseling insurers on claims resolution. She has represented insurers in connection with property damage and first-party coverage litigation, claims of “bad faith,” high-risk exposures, class actions and multi-district litigation.

For more information about Ms. Koltnow, click here.


“Tear Out” Coverage Did Not Apply to Repair Corroded Pipe

The homeowners reported water damage from a toilet overflow. The insurer acknowledged coverage for a certain amount of the damage and issued payment, but denied coverage for repairs to the drain line. The homeowner filed suit and the insurer sought to compel appraisal. Following an appraisal award for over $138,000, the insurer paid only a portion of the appraisal amount, while maintaining coverage defenses relating to “tear out” coverage to repair the corroded pipe and ALE not yet incurred. The trial court ordered the insurer to pay the full amount of the appraisal award. The appellate court reversed, holding that questions of coverage are for the judiciary. The court further held the policy’s “tear out” coverage narrowly applied only to that particular part of the building necessary to gain access to the specific point of the system from which the water escaped. Here, the covered damages were from the toilet overflow and the water escaped from the toilet—not from a pipe. Since the policy excluded the cost to repair the corroded pipe, tear out coverage also did not apply. However, ALE for the duration of time to repair the covered damage from the toilet overflow was due even though not yet incurred. The policy did not require the insured to submit receipts or documents verifying the cost had been incurred. State Farm v. Shotwell (3d DCA, Oct. 6, 2021). 

Tips & Lessons

  • This case should be carefully reviewed by insurance companies to consider amending their policy language to (1) narrow “tear out” coverage to only that specific point of the system where water escaped, and (2) add a requirement of verifiable proof of costs incurred before ALE coverage is due.

Insurer Did Not Waive Coverage Defenses by Submitting Claim to Appraisal 

The homeowners reported property damage from a septic tank overflow. The insurer acknowledged coverage for a certain amount of the damage, issued payment and invoked appraisal. The insured filed suit and the trial judge ordered the parties to appraisal. The appraisal panel determined an award for fungus-related damages and for ALE. The insurer did not pay the award and asserted the fungus endorsement precluded coverage. The homeowner argued that coverage was afforded, and the appraisal award simply determined the amount of the loss. The insurer argued the appraisal panel properly addressed the issue of causation, but the court must decide the issue of coverage. The trial court considered the appraisal an amount-of-loss award and entered judgment in favor of the insured for the full amount of the award. The appellate court reversed, holding that an insurer does not waive coverage defenses when it submits a claim to appraisal and the insurer may still argue that an element of loss is not covered by the policy. State Farm v. Gonzalez (2d DCA, Oct. 1, 2021). 

Tips & Lessons

  • Appraisal does not waive coverage issues. The court distinguished when causation is a coverage question for the court (when an insurer wholly denies there is a loss) and when causation is a question for the appraisers (when an insurer admits that there is a covered loss, but disputes the amount of the loss).
  • When invoking appraisal, consider clearly addressing what damages the appraisers are charged with assessing, and seek clarification of an award that does not delineate the cause of the damage.

Expert Opinion Regarding Cause of Floor Tile Damage Not Conclusory and Created Issue of Fact for the Jury

The homeowners reported property damage from a supply line water leak. The insurer covered the damage to 4 floor tiles. The homeowners requested a supplemental payment, but the insured denied the supplemental claim. After the homeowners filed suit, the insurer sought a summary judgment. The homeowners submitted an engineer’s affidavit who opined the water discharge caused the tiles to debond and all the floor tiles needed replacement. The insurer argued the affidavit was “speculative and conclusory” and should not be considered. The trial court agreed and granted summary judgment in favor of the insurer. The appellate court reversed, holding there was a fact-based rationale to the engineer’s opinion which created an issue of fact for the jury.  The appellate court distinguished the facts from Gonzalez v. Citizens Prop. Ins. Corp., (Fla. 3d DCA 2019), where the court held the engineer’s affidavit regarding the cause of the roof damage was inadmissible because it was based on conjecture rather than fact-based reasoning. Odalys Alvarez et al. v. Citizens Prop. Ins. Corp. (3d DCA, Sept. 29, 2021)

Tips & Lessons

  • The appellate court considered this case  under the old summary judgment standard, though stated it had no opinion whether the outcome would have been different under the new standard.
  • In Gonzalez, the affidavit was insufficient to create an issue of fact. Here, the affidavit was sufficient. Whether an expert’s opinions are “fact-based”, or “speculative and conclusory”– a fine line or a matter of opinion?