Shortly after an underground water line that serviced Plaza Park ruptured in November of 2019 causing flooding in the basement, the owner of Plaza Park filed a claim with its insurance provider, Auto-Owners Insurance Company (Auto-Owners). Plaza Park was composed of residential apartments and commercial spaces. Its insurance policy included commercial property coverage that included sections pertaining to the extent of water damage Auto-Owners would pay for and specifically stating what they will not cover. When the property owner’s claim was denied, it filed an action in the district court for breach of the insurance contract, requesting that Auto-Owners be ordered to pay $78,659.74 to cover the loss. French v. Auto-Owners Ins., 33 Neb. App. 646 (May 27, 2025). The main issue in the case was in the interpretation and language of the insurance policy regarding what Auto-Owners was required to pay in regard to water damage.
The local utility superintendent testified that water was “bubbling out of the sidewalk” and “from a portion of the street”. Through further investigation, he found that there was a rupture in the service line connecting the building to the city’s water main as well as water entering from the floor and wall as well as through the foundation. After learning of this, Auto-Owners filed a motion for summary judgment regarding the cause of the water damage, specifically that its cause was excluded under the policy.
The insurance policy stated that Auto-Owners will pay for direct physical loss of or damage to Covered Property…resulting from any Covered Cause of Loss. Auto-Owners reasoned that coverage was excluded under an exclusion in the “special form” which is referred to as the “water exclusion.” The “water exclusion” states that Auto-Owners “will not pay for loss or damage caused directly or indirectly by any of the following. Such damage is excluded regardless of another cause or event that contributes concurrently or in any sequence to the loss.” (318 Neb. 928). The policy further specified exclusions for water damage caused by:
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors, or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings[.]
This exclusion applies regardless of whether any of the above…is caused by an act of
nature or is otherwise caused
The plaintiff argued that the exception only applied to naturally occurring ground water despite the water exclusion explicitly stating that the exclusion applies regardless of whether the above were caused by an act of nature or otherwise caused. Additionally, it argued that an addendum of the insurance coverage was contradictory to the water exception. The addendum stated that Auto-Owner would pay the cost to tear out and replace any part of the building or structure to repair damages if the loss or damage was caused by covered water damage. (emphasis added).
The district court rejected this argument because the addendum covered damages to systems located on the premises but the water service line at issue here is located outside the building. The district court granted Auto-Owner’s motion for summary judgement finding that the water exclusion, which excluded coverage for loss caused by water under the ground surface, was not limited to ground water as the property owner had tried to argue previously.
The Nebraska Court of Appeals affirmed on appeal. It determined that the issue in this case was not whether the damages were suffered by “covered property” but instead whether the damages were the result of a “covered cause of loss.” To decide this, the court had to interpret the language of the insurance policy by first looking for ambiguous language. Ambiguity exists when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting meanings. The court decided that there was no ambiguous language because the plain language of the addendum limits it to only when the loss is caused by covered water. Because the water at issue is not covered under the original phrasing of the insurance policy, the extension does not apply and therefore there is no ambiguity in the policy.
The policy also contained coverage for “Utility Services Failure” which specified “If the failure or surge of power, …water or other utility service results in Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.” Additionally, there was an endorsement issued by Auto-Owners that amended the policy exclusion to say “we shall not pay for loss or damage caused by or resulting from the failure to supply…water supply services from any regional or national grid.” Between these two clauses in the policy, the court found that the damage was not covered by the policy and there was no ambiguity.
ES Law’s law clerk Grace Thaden assisted with the research and preparation of this article.