Foran Glennon Palandech Ponzi & Rudloff

April 2015

Damage by Rainwater or Damage by Rain? Iowa Court Says It’s All the Same.

Morgan Smith

The Supreme Court of Iowa recently addressed whether a policy excluding loss caused by “rain” also barred coverage for the non-excluded cause of loss “rainwater.” The court decided in the affirmative, holding that there is no distinction between the terms “rain” and “rainwater” for insurance recovery purposes. Amish Connection, Inc. v. State Farm Fire & Cas. Co., No. 13-0124, 2015 WL 1260085 (Iowa Mar. 20, 2015). This holding is significant because it imposes no duty for insurers to distinguish the two terms while crafting exclusions to bar coverage for rain/rainwater.

Factual Background: In the instant case, the insured, Amish Connection Inc., owned a store in a shopping mall in Waterloo, Iowa. An extensively corroded pipe running above the store’s ceiling tiles, down a back wall, and into a storm sewer, burst during a rainstorm, thereby, causing considerable loss to the store’s office supplies, inventory, and records. The insured had a property policy with State Farm excluding loss “to the interior of any building or structure, or property inside any building or structure, cause by rain…unless….the building or structure first sustains damage by an insured loss to its roof or walls through which rain….enters.” Based on that fact that the rainstorm did not cause any damage to the roof or walls, State Farm denied the insured’s claim. Consequently, the insured brought suit in the trial court.

Discussion: The trial court held that the water running through the pipe that later caused damage was rainwater, thereby granting the insurer’s motion for summary judgment. The insured appealed, and the Court of Appeals reversed on the basis that “rainwater” was not technically an excluded peril under the policy. The court opined that while the policy limited coverage for loss caused by “rain,” the policy never used the term “rainwater. Further, the definitions of rain and rainwater, while similar, “encompass two different points in time.” The court stated that while water is falling it is “rain,” and after it has fallen and collected it is “rainwater.”

In the most recent decision on this matter, the Iowa Supreme Court firmly rejected this argument. The insured argued that the insurance contract contained an ensuing loss provision providing that “if accidental direct physical loss by any of the ‘Specified Causes of Loss’…results, we will pay for that resulting loss.” In the policy, the specified causes of loss included “water damage, meaning accidental discharge or leakage of water or steam as a direct result of the breaking or cracking of any part of a system or appliance containing water or steam.” The insured asserted that the burst pipe was precisely a “system or appliance containing water.”

The court rejected the insured’s argument stating that an exception to an exclusion does not create coverage otherwise lacking. Moreover, the policy contained anti-concurrent cause language and as a result “damage from rainwater released by a breaking drainpipe during a rainstorm is not an insured loss because the damage is caused by rain within the meaning of the rain limitation, even though the breaking drainpipe is a concurred cause.”

The majority ultimately held that as a matter of law “water damage is caused by rain within the meaning of the policy exclusion when an interior drainpipe fails during a rainstorm and releases rainwater inside the building.” The court further rejected the appeals court holding stating that, “Under common parlance damage caused by “rainwater” is “caused by rain.” If water is only considered rain while it is falling and becomes rainwater after it strikes a surface then the policy’s limitation on coverage for damage “caused by rain” would be eviscerated. Water does not damage property while merely falling through the air, but only after it strikes a surface. Under the court of appeals interpretation, the rain limitation in the policy would be superfluous.”

Conclusion: As a result of Amish Connection, Inc. v. State Farm Fire & Cas. Co., No. 13-0124, 2015 WL 1260085 (Iowa Mar. 20, 2015), insurers in Iowa will have more grounds to apply exclusions for “rain” to also bar coverage for “rainwater.” This is helpful where only one of these terms is contemplated by a policy exclusion, and gives an advantage to insurers who seek to limit coverage for damage after rainstorms.