Pretzel Logic: Cheetham V. Southern Oak And Its Ill-Begotten Progeny

The standard ISO homeowners insurance policy contains an exclusion for damage caused by water which backs up through sewers or drains. While this appears to be an unambiguous exclusion, using twisted logic, the Third District Court of Appeal in Cheetham v. Southern Oak Ins. Co., 114 So. 3d 257 (Fla. 3d DCA 2013) interpreted this exclusion to apply only where the water which backs up through drain pipes originates from off the insured premises. The exclusion should be interpreted as written, rather than by ignoring one policy provision while interpreting another by adding language which is not present.

Cheetham involved a typical drain back-up claim. Water backed up through drains in the house and overflowed, causing damage to flooring and other parts of the house. The insureds made a claim against Southern Oak, which denied coverage based on the sewer back-up exclusion. The trial court granted a directed verdict in favor of Southern Oak and the insureds appealed to the Third District, which reversed.

The policy exclusion stated:

We do not insure for loss caused directly or indirectly by any of the following....

3. Water Damage

Water damage means:

* * *

1. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
2. Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment.
3. Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure;

However, the policy also contained the following provisions:

1. We insure against direct physical loss to property described in Coverages A and B.
2. We do not insure, however, for loss:

* * *

3. Caused by:

6. Any of the following:

1. Wear and tear, marring, deterioration;

* * *

Exception to c.(6)

Unless the loss is otherwise excluded, we cover loss to property covered under Coverage A or B resulting from an accidental discharge or overflow of water or steam from within a:

1. Storm drain, or water, steam or sewer pipe, off the “residence premises”; or
2. Plumbing … system … on the “residence premises" ...

12. Accidental Discharge Or Overflow Of Water Or Steam

1. This peril means accidental discharge or overflow of water … from within a plumbing … system ….
2. This peril does not include loss:

3. On the “residence premises” caused by accidental discharge or overflow which occurs off the “residence premises”; …

3. In this peril, a plumbing system … does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment.
4. Section I – Exclusion A.3. Water Damage, Paragraphs a. and c. that apply to surface water and water below the surface of the ground do not apply to loss by water covered under this peril.

Cheetham, 114 So. 3d at 259-260.

The Court began its analysis with the principles that insurance policies should be given their plain, ordinary meaning, and that ambiguities must be interpreted against the insurer. Id. at 261-62. However, it ignored the principle that in interpreting an insurance policy, the court must give all provisions meaning. An interpretation that renders any portion of the policy meaningless must be rejected. See Gen’l Star Indem. Co. v. West Fla. Village Inn, Inc., 874 So. 2d 26 (Fla. 2d DCA 2004). It then interpreted the sewer back-up provision as follows:

Paragraphs a. and c. of the water damage exclusion reflect that there will be no coverage for water damage to the residence premises, which were caused by outside forces unrelated to the residence premises’ plumbing system. For example, paragraph a. excludes coverage for water damage caused by “[f]lood, surface water, waves, tidal water, or the overflow of a body of water,” and paragraph b. excludes coverage for water damage caused by “water or water-borne material below the surface of the ground.” Likewise, the water damage excluded in paragraph c. pertains to damage caused by water not originating from the residence premises’ plumbing system even though the water or water-borne material eventually backs up through a pipe and/or drain within the plumbing system of the residence premises.

* * *

Based on our de novo review of the relevant policy provisions, we conclude that the exclusions from coverage contemplated by paragraphs a., b., and c. of the water damage exclusion relate to damage caused by water originating from somewhere other than the residence premises’ plumbing system. Because the claimed loss in this case was caused by the deterioration of a pipe within the plumbing system, which caused water or water-borne material emanating from the residence premises’ plumbing system to back up into the residence premises, we find the Cheethams’ loss is a covered loss under the policy.

Id. at 262-63.

That analysis is fatally flawed and blatantly mischaracterizes the water damage exclusions. The Court correctly quoted part a. of the water damage exclusions. However, paragraph b. does not “exclude coverage for water damage caused by ‘water or water-borne material below the surface of the ground.’” That is paragraph c. The court also correctly recognized that paragraph c. pertains to water that originates somewhere other than the insured premises.

Thus, the court held that all three of the water damage exclusions pertain to water that originates off the residence premises. That interpretation writes the following provision completely out of the policy:

2. This peril does not include loss:

* * *

3. On the “residence premises” caused by accidental discharge or overflow which occurs off the “residence premises”; ...

In fact, it reads it to say the exact opposite of what it says. Water loss from within a plumbing system caused by accidental discharge or overflow which occurs off the residence premises is expressly excluded from the peril of discharge of water from within a plumbing system. Yet the court reached precisely the opposite result.

Unfortunately, the Eleventh Circuit recently reversed a summary judgment granted by the Southern District of Florida based on the same provisions. See Cameron v. Scottsdale Ins. Co., 726 Fed. Appx. 757 (11th Cir. 2018), vacating Cameron v. Scottsdale Ins. Co., 2017 WL 1153863 (S.D. Fla. Mar. 28, 2017). The District Court refused to follow Cheetham and held the sewer back-up exclusion unambiguous. The Eleventh Circuit simply cited to Cheetham without engaging in any meaningful analysis and vacated the District Court’s opinion.

Therefore, it appears for now that Florida law on the sewage back-up exclusion will remain adverse to the actual language of the policy. This is an issue that may be ripe for decision by the Supreme Court if any District Court of Appeal takes the opportunity to actually read the policy and apply it as written.