Coverage under a homeowners' policy was denied by State Farm when corrosion surrounding a nail driven through a pipe caused a leak and extensive water damage many years later. See Freedman v. State Farm Ins. Co., B202617 (Cal. Ct. App. May 5, 2009)[here]. The policy provided "all-risk" coverage, but excluded loss from: (1) corrosion, electrolysis or rust; and (2) "water damage, meaning continuous or repeated seepage or leakage of water from a plumbing system." Further, the policy excluded negligent conduct and defective workmanship by third parties whenever they interacted with an excluded peril.
The insureds argued the contractor's negligence in driving the nail through the pipe was a covered peril and was the efficient proximate cause of the loss. State Farm contended the identity of the efficient proximate cause of the loss did not matter because each of the possible efficient proximate causes was an excluded peril - corrosion and seepage or leakage of water were excluded, and third-party negligence was excluded whenever it interacted with an excluded peril. The trial court granted State Farm's motion for summary judgment.
The Court of Appeal was influenced by the California Supreme Court's decision in Julian v. Hartford Underwriters Ins. Co., 35 Cal. 4th 747 (2005). There, the all-risk homeowner's policy excluded: (1) earth movement; and (2) weather conditions whenever they interacted with an excluded peril to cause loss. When heavy rains caused a landslide, damaging the Julians' home, there was no coverage because the policy excluded each of the efficient possible proximate causes of the loss.
A similar analysis applied here. The third-party negligence provisions of the homeowners' policy excluded third parties' negligent conduct and defective workmanship when they interacted with an excluded peril. Thus, the policy excluded contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water, just as the Julians' policy excluded a rain-induced landslide.
