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HOME INSURANCE – COVERAGE FOR WATER DAMAGE – EXCLUSIONS NOT APPLICABLE – EXCEPTIONS APPLICABLE

A man-made dam broke 500 metres uphill from client’s home, causing water to rush down a small creek bed onto client’s property, washing out driveway, damaging landscaping and seeping into basement of home.

Client called her insurance broker, who reported the loss to Peel Mutual. Peel Mutual sent independent adjuster to attend property and assess the situation. He concluded the loss was not covered because it was “ground water”, and ground water was excluded from coverage.

Client retained David Morin (Huntsville office of WILL DAVIDSON LLP) who started an action against the owner of the uphill property and against Peel Mutual. Peel Mutual wrote to Mr. Morin stating that the “surface water” exclusion also applied. Peel then indicated that all water was excluded unless specifically excepted, and there was no exception in the policy for “dam water”.

In the third party action, the builder of the dam gave evidence that he constructed the dam to manage water that accumulated on the land which would otherwise undermine trails and roads he had constructed on the property in order to develop it into a subdivision. The dam was constructed of partly imported material and included an overflow and culverts to take away excess water. Beavers had blocked culverts with sticks and built dams. Because these were not cleaned out, spring melt and heavy rains caused the beaver dams to break, which caused water to rush onto the dam and washed the dam out from behind.

Client’s homeowners policy was a comprehensive one, providing insurance to indemnify from loss by “sudden and unexpected occurrences”. One of the perils excluded was loss or damage by water, unless it fit within several categories of loss. A number of exceptions to the general exclusion for damage by water had, as a common denominator, the escape of water from a variety of man-made containers or barriers or conduits of water, including water mains, swimming pools, heating, sprinkler, air conditioning or plumbing systems, domestic appliances, waterbeds, sewers, drains, sump or septic tanks, eavestroughs or downspouts, an “opening” created suddenly and accidentally by a covered peril, and shingles which, when combined with ice, caused ice damming on a roof.

Client brought a motion for summary judgment. The motions judge held the exclusions for “ground water” and “surface water” did not apply because the loss was caused by dam water, not ground or surface water. He considered the exceptions in the policy that had, as a common denominator, the escape of water from a variety of man-made containers or barriers or conduits of water. He found that two of these exceptions applied:

1. The individual who constructed the dam had constructed a water management system, comparable to any other storm management system in a rural subdivision. There was no significant distinguishing feature. Because “sewer” was not defined in the policy, there was no reason to exclude the water management system in the subdivision from the exception in the policy for accidental escape of water form a sewer or drain.

2. The motions judge went on to consider the exception for “water which enters through an opening which has been created suddenly and accidentally by a peril not otherwise excluded.” He found this exception also applied to the loss. There was no reason to exclude water which entered the property through an opening created in a dam or through an enlarged creek bed opening created by the sudden and accidental bursting of the dam. Such coverage corresponded to the common denominator of escape of water from a man-made container or conduit of water.

Having interpreted the policy as covering the loss and damage caused by the dam erupting, the motions judge asked the parties to agree on damages, failing which they would be determined at trial.

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