When a Loss Falls Within Policy Exclusions as a Matter of Law the Complaint Cannot Survive

Collapsed House

The policyholder bears the burden of demonstrating that a loss suffered falls within the terms of the insurance policy.  In other words, the existence of coverage is an essential part of a policyholder’s claim.  Where the insurance company raises an exclusion, the initial burden is on the insurer to show that all the allegations within the complaint fall completely within the exclusion.  Many homeowner’s and other property policies have exclusions for losses caused by water and for wear and tear.  The Second Circuit recently upheld those exclusions in a coverage dispute over water damage to a home and affirmed dismissal of the complaint.

In Mazzarella v. Amica Mutual Ins. Co., No. 18-1269-cv (2d Cir. May 16, 2019) (Summary Order), property owners sued their insurer for breach of contract, breach of implied covenant of good faith and fair dealing and statutory violations under Connecticut law for denying their claim for direct physical loss to their home caused by water and oxygen infiltration, including damage to concrete basement walls and other parts of the home.  The district court dismissed the complaint for failure to state a claim for which relief can be granted.  The Second Circuit affirmed.

In affirming, the court held that the loss as described in the complaint fell within the policy exclusions as a matter of law.  The allegations of damages caused by water and oxygen infiltration and rainwater entering the residence unambiguously fell within the exclusion for loss caused by water, which included surface water, overflow, storm surge, backup water, water below the ground, water that leaks through a building and other similar issues.  Additionally, the court held that the exclusions for wear and tear, deterioration, latent defects, settling, bulging and expansion would also bar the loss.

The court also affirmed the dismissal of the remaining causes of action because the allegations set forth a mere coverage dispute or negligent investigation, which did not suggest a dishonest purpose and because the denial of coverage was not wrongful.  The statutory claims for unfair settlements were also dismissed because the claim was denied properly given that the loss fell within the policy exclusions. Moreover, found the court, there was no adequate pleading that the insurer engaged in statutory misconduct distinct from the coverage denial.

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