December 18, 2019

By Kent Bevan

In Midwest Family Mutual Insurance Company v. Hari Om Rudra Hotel, LLC (hotel) the plaintiff, Midwest Family Mutual Insurance Company (MFM), issued a business owner’s policy to the hotel. During the policy term, water infiltrated several rooms of the hotel and was also discovered in the parking lot area of the hotel. All of the claimed damage was a result of a leak from an underground water pipe underneath the parking lot. Upon discovering the water leakage and resulting damage, the hotel submitted a claim.

MFM investigated and concluded that the water intrusion and “buckled” parking lot were the result of a water main break caused by corrosion, decay, deterioration, hidden or latent defect or a quality in the pipe that caused it to damage or destroy itself. The hotel’s expert, on the other hand, concluded that the corrosion in the underground water pipe appeared to be related to an isolated backfill condition of the soil.

The policy contained exclusions for earth movement and water, among other things. The earth movement exclusion included earth sinking, rising or shifting, including soil conditions causing settling, cracking or other disarrangement of foundations or other parts of the realty. The exclusions for water damage included water that is up or overflows or is otherwise discharged from a sewer, drain, sump pump or related equipment, water under the ground surface pressing on or flowing or seeping through foundations, walls, floors or paved surfaces, basements, whether paved or not or doors, windows or other openings. The exclusions are much more extensive than set out here.

MFM maintained that it is undisputed that all of the damages were the result of water that leaked out of the underground pipe located outside of the hotel. MFM denied the claim and in the resulting lawsuit, both MFM and the hotel filed dispositive motions.

The United District Court for the Western District of Missouri found that all claimed damages of the hotel are excluded under the policy’s underground water exclusion and/or the earth movement exclusion. The court granted MFM’s dispositive motion for declaratory judgment and granted MFM’s summary judgment motion. In so doing, the trial court denied the hotel’s motion for partial summary judgment for lack of coverage. The court noted that the insured bears the burden of proving that there is coverage under a policy (Shelter Mutual Insurance v. Ballew, 203 SW 3d 789 [Mo App 2006]) and, as such, the hotel had to prove that there was direct physical loss or damage to the insured property, that the property damage was “covered property” and that the damage resulted from a covered cause of loss. The hotel failed in its burden.