Relying on the efficient proximate cause doctrine, the court determined coverage potentially existed for damage caused by water. Union Sav. Bank v. Allstate Indem. Co., 2011 U.S. Dist. LEXIS 134398 (S.D. Ind. Nov. 21, 2011).
The Tods purchased property that was mortgaged by Union Savings. The Tods obtained a Landlords Policy for the property from Allstate. When the Tods were in default on their loan, Union Savings notified them that foreclosure proceedings would commence. Union Savings sent an appraiser to the property who discovered water in the basement. Water and electricity to the building were off. Union Savings notified Allstate and later filed a formal claim under the mortgagee clause in the Landlords Policy. This clause stated, "A covered loss will be payable to the mortgagees named on the policy declaration. . . ."
Allstate denied coverage, citing exclusions for water damage. The policy excluded coverage for a loss consisting of or caused by "water or any other substance that overflows from a sump pump." Suit was filed, followed by cross motions for summary judgment.
Allstate's investigator concluded that the water damage was the result of a lack of power to the sump pumps for extended periods. Union Savings asserted that the sole cause of the damage was the Tods' negligence in paying their electricity bills, resulting in an electrical shut down which cased the sump pump failure, and ultimately, water damage. Allstate contended the water damage caused by the overflowing sump pump was an intervening event that broke the causal chain started by the Tods' failure to maintain electric service to the house. However, under the efficient proximate cause theory, the water event that occurred after the causal chain was set in motion was simply an effect of the insured risk. Accordingly, if the Tods' failure to maintain electric service to the property was an insured risk, then the claimed loss was covered if it was caused by such failure.
Therefore, to the extent that the damage was caused by the Tods' failure to maintain electricity to the Property, the Landlord's Policy provided coverage to the mortgagee, Union Savings. Allstate's motion, seeking a determination that the policy did not provide coverage for Union Savings' claimed loss, was denied.