“Rainwater” Does Mean “Rain” After All
Amish Connection, Inc. v. State Farm Fire and Casualty Company, No. 13-0124, 2015 Iowa Sup. LEXIS 32 (Iowa Sup. Ct. Mar. 20, 2015), rev’g., 847 N.W.2d 237 (Iowa Ct. App. 2014)
Last year we told you about an Iowa Court of Appeals decision in which the justices determined that “rain” and “rainwater” had different meanings for purposes of a rain limitation in an insurance policy. The Court of Appeals determined that damage from “rainwater” flowing from a broken interior pipe into a business was not damage “caused by rain” so as to be excluded from coverage under the policy. On Friday, the Iowa Supreme Court disagreed, vacating the Court of Appeals decision, and affirming the district court’s summary judgment in favor of the insurance company. The decision, however, was not easy. Three justices joined in a lengthy, reasoned dissent. In the end, however, Iowa has joined the list of states where “rainwater” and “rain” are synonymous.
The plaintiff operated a store in a leased space in a shopping mall. Because business had been slow, the store shuttered its doors for a time. A rusty, poorly-maintained drain pipe ran from the mall’s roof drain line above the ceiling tiles and along the interior back wall of the plaintiff’s space. The pipe was not visible because it was housed behind the tiles. While the store was closed for business, a heavy rainstorm arose. During the storm, the drain pipe burst, flooding the plaintiff’s space with rainwater and damaging its property.
The plaintiff sought coverage for the damage from the insurer, from whom it had purchased a business policy. The policy provided coverage for “accidental direct physical loss to property,” but excluded from coverage damage “caused by rain” unless the building first sustained damage by an insured loss to its roof or walls through which the rain entered. The insurer denied coverage for the claim on the same day it received it, asserting that the loss fell under the exclusion for damage “caused by rain.”
Lower Court Proceedings
The plaintiff filed a breach of contract action against the insurer, and the district court entered summary judgment in favor of the insurer. The district court ruled that the rain limitation unambiguously barred coverage. On appeal, the court of appeals reversed, finding that the exclusion did not bar coverage for “rainwater,” which in this case had flowed through the pipes and into the building. The court had defined “rain” as “water falling in condensed drops from the sky” and “rainwater” as “water fallen as rain that has not had an opportunity to collect soluble matter from the soil.” The court thus ruled that under the “plain language” of the policy, the loss was not excluded.
Iowa Supreme Court
The Iowa Supreme Court did not appreciate the distinction. The Court found that because “rainwater” is unquestionably caused by “rain,” the damage at issue was “caused by rain.” The Court reasoned that if water is only considered to be “rain” when it is falling from the sky and that it becomes covered “rainwater” upon striking a surface, any “rain” limitation in a policy would be eviscerated.
The Court noted that this interpretation supports the intent of the exclusion: Property insurance is not intended to provide coverage for damage resulting from deferred maintenance. Thus, the Court held that damage is “caused by rain” when an interior drainpipe fails during a rainstorm and releases rainwater inside the building.
The Court also found that the “water system” exception to a “rust and corrosion” exclusion in the policy did not create coverage for the plaintiff. The exception stated that “water damage, meaning accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam” was a specified cause of loss. The Court explained that this type of loss was specifically excepted from the policy’s exclusion for “rust, corrosions, [and] deterioration.” This provision, the Court found, was an “exception to an exclusion,” which could not, on its own, serve as a basis for coverage. The Court ruled that the rain limitation of the policy controlled, regardless of whether the broken drainpipe was considered a concurrent cause of the rainwater damage. The rain limitation, the Court found, had no exception for “specified causes of loss.” The Court reasoned that the policy would have contained such an exception had the insurer intended to cover water damage from a breaking drainpipe releasing rainwater.
The Court concluded that “under the unambiguous terms of [the] policy, damage from rainwater released by a breaking drainpipe during a rainstorm is not an insured loss because the damage is caused by rain with the meaning of the rain limitation, even though the breaking drainpipe [was] a concurrent cause.”
The three dissenting justices argued that a genuine issue of material fact remained on the question of whether the loss was in fact caused by rain or by some other covered occurrence. The dissent contended that the summary judgment record left room for a finding that the loss suffered would not have occurred as a consequence of the rain alone, but only because the pipe failed while the rainwater was passing through it. As such, the dissent argued that a jury could have found that rain was neither the sole nor the primary factual cause of the plaintiff’s loss. It was for the jury to decide the cause of the plaintiff’s loss. The dissent asserted that under its interpretation, the policy covered water damage arising from accidental leakage stemming from the breaking of a pipe, whether or not that damage resulted from faulty maintenance. Thus, the dissent urged that it was for the jury to decide whether the damage resulted from a covered cause.
Although the dissent disagreed with the majority’s interpretation of the policy, it did agree with the conclusion that “rainwater” is “rain” for purposes of a rain limitation in an insurance policy. Consequently, insured Iowans can no longer rely on that distinction when arguing against a rain limitation provision in an insurance contract.
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