Wisconsin Court of Appeals Holds that Insurance Policy's Water Exclusion and Insured's Failure to Satisfy the "Independent Concurrent Cause" Rule Precludes Coverage When Insured's House Collapsed After Rain-Saturated Soil Moved From Underneath the House
In American Family Mut. Ins. Co. v. Schmitz, the Wisconsin Court of Appeals held there was no coverage when heavy rain saturated the soil beneath a house causing the soil to move and the house to collapse. At the time of the collapse, the foundation of the house was being excavated without a retaining wall. The court concluded that, even though the failure to build a retaining wall was a covered risk, the insurance policy’s water damage exclusion and the insured’s inability to satisfy the “independent concurrent cause” rule precluded coverage for the loss.
For the first time the court set fortha definition of “surface water.” It also considered whether to apply an “anti-concurrent cause” provision. The policy provided that American Family did not insure loss caused by “water damage,” defined in part as “surface water.” In addition, the policy provided that loss caused by water damage was “excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” Schmitz argued that the water causing damage was not surface water but rather was rain water and, regardless, any once-present surface water lost its character as such when a man-made trench located on the property as a result of the excavation altered the course of the water. The court disagreed with both arguments.
First, the court determined that the water causing damage was surface water, observing that other courts have defined “surface water” as water that is derived from falling rain. It observed that “[t]o limit the definition of surface water to water that does not originate as rain would leave the term surface water without much meaning.”
Second, the court rejected Schmitz’s argument that any water that might have been surface water ceased to be so when the man-made excavation trench altered the water’s course. The court reasoned that the trench was not a “defined channel” created for “the purpose of diverting water.” It further reasoned that it would render a surface water exclusion “virtually useless” to hold that when water touches “something humanly created” it ceases to be surface water.
After it resolved the issues related to the water damage exclusion, the court addressed American Family’s arguments related to the “anti-concurrent cause” provision, but ultimately did not apply that provision. American Family argued that an “anti-concurrent cause” provision precludes coverage whenever an excluded risk causes loss, regardless of the presence of any other contributing causes. The court declined to adopt such a rule. Instead, the court cited Wisconsin’s “independent concurrent cause” rule, which states that the covered cause “must provide the basis for a cause of action in and of itself and must not require the occurrence of the excluded risk to make it actionable.” The court concluded that Schmitz did not satisfy this rule because the covered risk (failure to build a retaining wall) “clearly would not have been actionable without the occurrence of the excluded risk (surface water washing out the earth underneath the home).”
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