Insureds cannot rely on the word of an insurance adjuster—even one hired by the insurer—to show that a homeowners’ policy covers sewage backup, a federal appeals court said in a case that underscored the sanctity of policy exclusions but also raised questions.
“While we respect the unfortunate nature of events presented in this case, we may not allow (the adjuster’s) statements — while confusing and frustrating for the Coopers — [to] create coverage where none exists,” the U.S. 5th Circuit Court of Appeals wrote in Cooper vs. State Farm Fire & Casualty.
The scenario could scarcely have been more disgusting for the Coopers, who lived in Canton, Mississippi, near the state capital of Jackson. In 2022, the family returned from choir practice to find sewage bubbling up through their shower and tub drains into several rooms of their 4,600-square-foot house, a house that had been built only three years earlier, the court explained.
The couple called a restoration company and notified State Farm. The Coopers had purchased a homeowners’ policy, which excluded coverage for sewage “from outside the premises’ plumbing system.” They also had added an endorsement that covered sewer backups, but only up to 5% of Coverage A.
According to the homeowners and their attorneys, the adjuster initially sent by State Farm told them that the nasty damage was covered because the sewer drainpipe had cracked on their property. A second adjuster sent by State Farm did what a number of adjusters have said is not uncommon for many carriers: He revised the initial assessment and said that on further review, the homeowners’ primary policy did not apply, the Coopers attorneys contended. The primary policy claim was denied.
The Coopers sued State Farm, arguing breach of contract, bad faith and intentional infliction of emotional distress. A federal judge for the Southern District of Mississippi granted State Farm’s motion for summary judgment, dismissing the case and noting that the policy clearly excluded recovery for damage caused by sewage from outside the premises.
Water damage exclusions have become increasingly common in homeowner primary policies, around the country. Some exclude all sewage backups—for waste generated on premises and off.
On appeal, the 5th Circuit panel of judges upheld the district court’s dismissal of the suit.
Under Mississippi law, an insurer representative’s suggestions that purport to modify the insurance contract can bind the insurer only if the statements were authorized by the carrier, appeals court Judge Leslie Southwick wrote in the Feb. 12 opinion, quoting from a 2007 decision by the 5th Circuit, Leonard vs. Nationwide. The Coopers’ side presented no evidence that State Farm had authorized the adjuster to unilaterally revise the policy terms.
The appellate judges also noted that the Coopers did not prove that the excrement had come from their home’s system. This was despite a letter from the municipal utility denying liability. The letter argued that a burst pipe was on their property, and that the backup was the result of problems with the home’s sewage grinder pump.
One plumber had agreed that the backup was not caused by off-premises issues. Another, though, found that a cracked connection in the drainpipe and a lack of a redundancy valve on the grinder pump allowed mess from the city’s system to backflow into the home.
“These contradictory opinions create a factual dispute that must be resolved by a jury, not through summary judgment,” the Coopers’ attorney, Ed Blackmon Jr., a former state legislator, wrote in his appellate brief.
The 5th Circuit panel said that while the cause and location of the problem may have been in question, the sewage itself appeared to come from off-premises.
“While the (utility) letter confirms that the failure of the grinder pump on the Coopers’ property contributed to the backup of sewage, it does not create a fact question as to the source of the sewage,” the appellate judges noted.
The court agreed with State Farm’s legal team, led by Amanda Barbour. She argued in the appeal that the plumbers’ opinions were not, actually, that different, and that the adjuster’s comments to the family did not re-write the policy.
The majority of the panel also appeared to rely heavily on State Farm’s expert witness, who differed slightly from the plumbers and concluded:
“It is impossible for sewer water from on-premises to have backed up into the home and flooded a portion of the first floor when no plumbing fixtures were in use. The backup of the sewer water came from sewage in the subdivision’s pressurized system that flowed into the home through the failed grinder part system into the home’s central PVC pipe that led to the home’s plumbing fixtures and resulted in the sewage flood,” the carrier’s expert wrote in a report.
The appellate judges noted that none of the previous court decisions cited by the plaintiffs allowed them to overcome the policy language that barred coverage.
Judge Andrew Oldham dissented from the other judges on the panel and was highly critical of State Farm. He wrote that the facts all supported the family, and that State Farm had given the impression that the adjuster was authorized to approve coverage. If the adjuster could not decide coverage with finality, then who could, Oldham asked.
“At a bare minimum, State Farm should be forced to stand in front of a jury and explain why it can tell the Coopers to make costly repairs to their sewage-soaked home and then renege on its promises,” Oldham wrote.
The opinion and dissent can be seen here.
Related: Appeals Court Weighs in on Brokers’ Duty in Securing Adequate Coverage
Topics
Mississippi
State Farm
