In May, we reported that a New York court had found that a policy containing both an exclusion for water that backs up through sewers and drains and a coverage grant for accidental discharge or overflow from a plumbing system was neither internally inconsistent nor ambiguous in nature.  The post can be found here.  On June 17th, Oklahoma’s highest court agreed, albeit without citing the New York case, and it held that the two provisions were fully reconcilable and enforceable.  The case in question is Porter v. Oklahoma Farm Bureau Mut. Ins. Co., 330 P.3rd 511, 2014 Okla. LEXIS 72 (Okla., June 17, 2014).

Justin and Brandy Porter owned a home that was damaged when raw sewage entered the premises on November 14, 2009.  Their homeowners carrier was Oklahoma Farm Bureau Mutual Insurance Company, and the insurer denied.  Litigation followed.  After the district court granted Oklahoma Farm Bureau’s motion to dismiss and the state’s intermediate level appellate panel affirmed, the Oklahoma Supreme Court granted the Porters’ writ of certiorari.

The contract of insurance afforded all risk coverage for real property loss but covered loss to personal property on a specified perils basis.  One of the specified perils enumerated was:

Accidental Discharge or Overflow of Water or Steam from within a plumbing, heating, air conditioning or automatic fire protection sprinkler system[.]

With respect to both real and personal property, the policy also excluded loss caused by “water damage meaning . . .  water which backs up through sewers or drains[.]”

The Porters argued that the insurance policy thereby “simultaneously includes and excludes coverage for raw sewage damage,” rendering it ambiguous and requiring construction in their favor under the doctrine of reasonable expectations.  The court noted that there was no “clear majority position” in other jurisdictions with respect to whether the exclusion and the coverage grant could be reconciled, but seven of the nine justices found “no ambiguity in the policy provisions at issue.”

As Justice Steven W. Taylor’s opinion explained:

The sewer-or-drain-backup exclusion modifies the coverage for loss to real and personal property by excluding any loss “resulting directly or indirectly from . . . water which backs up through sewers or drains.” . . .  For example, if a city sewer line off the insured’s property is cut, causing raw sewage and waste to back up into the sewer and ultimately overflow from the insured’s toilets, the loss would be excluded under the policy.  Specifically, an insured’s real property loss would be excluded under the sewer-or-drain-backup exclusion because the loss resulted directly from a sewage backup.  Similarly, an insured’s personal property loss would be excluded under the sewer-or-drain-backup exclusion for the above reason.

The court nonetheless remanded because the facts were not clearly developed in the appellate record.  The Porters’ petition had alleged that their “home was damaged by sewage and waste water which overflowed from their plumbing lines” in a clear effort to invoke the accidental discharge coverage grant.  Oklahoma Farm Bureau’s denial letter, however, had asserted that the cause of loss was a severed sewer line that was located off the Porters’ premises.  As the decision explained:

The parties dispute the source of Plaintiffs’ loss, whether the plumbing system or the sewer.  If the facts are as Plaintiffs allege – the source of the damage was the plumbing system – Plaintiffs’ real property loss is covered under the general coverage provision for real property and is not excluded under the sewer-or-drain-backup exclusion.  On the other hand, if the facts are as Defendant alleges – the source was the sewer line to the Plaintiffs’ property – Plaintiffs’ real property loss is excluded under the sewer-or-drain-backup exclusion.  We thus remand to the district court to determine the source of Plaintiffs’ damage, specifically whether the source was Plaintiffs’ plumbing system or the sewer line, as the denial letter contended.

As in New York, the take away is that these two provisions operate in tandem to cover loss caused by water which backs up through sewers and drains if the overflow originated within the insured’s plumbing system but to exclude it if the backup originated off-site, as from a clogged municipal sewer system.