No Coverage Under Fungus Endorsement Where Cause of Loss is Excluded
In Marsh v. American Family Mut. Ins. Co., ___ Or. App. ___, (2009), an opinion issued on October 14, 2009, the Oregon Court of Appeals reversed the judgment of the trial court and held that damage caused by water leaking from a shower was not covered under the terms of the particular homeowners’ policy.
The insurer appealed a judgment for its insureds asserting that the homeowners’ policy did not provide any coverage for the insureds’ claim. The insureds cross-appealed, assigning error to the trial court’s limitation of their recovery to $5,000.
The case arose after the insureds noticed a musty odor and a “mushy” floor in a bathroom of their home. The insureds hired a contractor to remodel the bathroom who later testified at trial that a leak had occurred in the bathroom shower that permitted water to penetrate the area under the shower, causing the sub-floor to sustain dry rot. The insureds made a claim under their homeowners’ policy to recover the cost of repairs to the bathroom; the insurer denied the claim on the basis that the damage was not covered under the terms of the policy. The insureds then filed an action against the insurer for breach of the policy.
Relying on evidence that the structure under the shower membrane had deteriorated to the point that it did not provide structural support, the trial court concluded that the damage caused to the structure was so severe that it constituted a “collapse” covered under the terms of the Supplementary Coverages – Section I of the policy. Having made that finding, the trial court then determined that a provision of the “Losses Not Covered” section for “continuous or repeated seepage or leakage of water” excluded coverage. However, the trial court determined that there was coverage under an endorsement regarding fungi, wet or dry rot, or bacteria that was not subject to any exclusion, but limited the insureds’ recovery under the coverage to $5,000 in accordance with the supplemental coverage limits.
After addressing the relevant policy terms, and employing Oregon’s rules to interpret the terms of an insurance contract, the appellate court held that the trial court, based on the circumstances that it found, correctly ruled that the exclusion for “continuous or repeated seepage or leakage of water” excluded coverage under Section I of the policy. The appellate court also held, however, that the trial court had ruled incorrectly in finding coverage under the endorsement.
The appellate court found that language in the Endorsement - Supplemental Coverage section of the policy predicates coverage on whether the loss covered by the supplemental coverage is a “covered cause of loss.” The appellate court held that the cause of loss in this case was not a covered cause but an excluded cause, and reversed the trial court’s ruling by holding that the endorsement regarding fungi, etc., was also subject to the exclusion for “continuous or repeated seepage or leakage of water.”
