Water Damage: What Does the Seepage and Leakage Exclusion Actually Exclude?
Doug's new article "Water Damage: What Does the Seepage and Leakage Exclusion Actually Exclude?" was just published in the Journal of Insurance and Indemnity Law. It addresses "gradual or repeated leakage or seepage" exclusions, such as the following:
1. “We” do not insure “physical loss” caused by:
* * *
h. Constant or repeated seepage or leakage of water or the presence or condensation of humidity, moisture or vapor, over a period of weeks, months or years unless such seepage or leakage of water or the presence or condensation of humidity, moisture or vapor and the resulting damage is unknown to all “insured” and is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure.¹
Although the exact language varies, most Michigan homeowners policies include some version of this exclusion. The exclusion applies to slow, low volume leaks that cause damage over "weeks, months or years," such as a dripping drain pipe under a sink. If discovered early, virtually all damage from such losses can be prevented by catching the water before it reaches vulnerable building components (like cabinets, subfloors and lower level ceilings) until the leak is repaired. This can be a simple as placing a bucket under the sink and emptying it until someone is able to fix the plumbing. Slow leaks can originate from toilets, tubs, washers, and pipes, so it's a good idea to inspect them regularly.
In contrast, sudden, high volume water losses cause substantial damage almost immediately. A failed pressurized pipe can release thousands of gallons per day. This is obviously not "gradual or repeated leakage or seepage." However, insurance companies sometimes cite similar exclusions when denying coverage for high volume water losses when the insured does not know the exact date of loss, and thus whether water continued flowing for two weeks or more. Doug's article discusses why this is incorrect and these exclusion do not bar coverage for high volume loses, as the Michigan Court of Appeals decided in Cincinnati Insurance Company v. Kaeding.²
¹ Taken from the policy at issue in Cincinnati Insurance Company v. Kaeding, Mich. Ct. App. 332559, (7-20-2017; unpublished).
² Cincinnati Insurance Company v. Kaeding, Mich. Ct. App. 332559, (7-20-2017; unpublished).