Have You Ever Seen The Rain? Iowa Supreme Court Discusses "Rain Exclusion" In Property Insurance Policy

By harley erbe

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When John Fogerty wrote the lyrics "I wanna know, have you ever seen the rain?"  he omitted the follow-up questions that the Iowa Supreme Court asked in the March 20, 2015 decision of Amish Connection, Inc. v. State Farm Fire & Casualty Co.: If you did see the rain, did it get inside your house or building and cause property damage? And if that happened, does your property insurance cover the loss?

In Amish Connection the issue was whether a business insurance policy covered water damage inside a building that resulted when a corroded interior drainpipe burst during a rainstorm. The pipe carried rainwater from the roof to a storm sewer. Amish Connections's policy only insured damage “caused by rain” if an insured event first ruptured the roof or exterior walls to allow the rain to enter or if the damage resulted from melting ice or snow. 

Amish Connection was the Iowa Supreme Court's first opportunity to review a coverage claims under a rain limitation in an insurance policy. The facts were undisputed as to the source of the water damage—a corroded interior drainpipe burst during a rainstorm, flooding the rooms inside with rainwater. The fighting issue was whether the damage was “caused by rain” within the meaning of the limitations of coverage that excluded coverage for rainwater damage in certain circumstances.

The court had no difficulty concluding that the rain exclusion foreclosed Amish Connections's claim. The policy's rain limitation clearly stated that subject to two exceptions State Farm “will not pay for loss . . . to the interior of any building . . . or the property inside . . . caused by rain.” The first exception allowed coverage if “the building . . . first sustains damage by an insured loss to its roof or walls through which the rain . . . enters.” The second exception to the rain limitation provision allowed coverage if “the loss is caused by thawing of snow, sleet or ice on the building or structure.” Neither exception applied in Amish Connections's situation.

Amish Connections, realizing that the rain damage exclusion would be problematic, offered a clever argument that the water damage to its business space was not “caused by rain” within the meaning of the insurance policy's rain exclusion. It contended that the water escaping the ruptured drainpipe was no longer “rain” but rather “rainwater.” But the court noted that “rainwater” is “caused by rain." Thus water damage is “caused by rain” within the meaning of a rain damage limitation when an interior drainpipe fails during a rainstorm and releases rainwater inside a building.

The court buttressed the State Farm policy's plain language with a broader argument about the purpose of insurance. The interior pipe burst because it had was corroded and had not been maintained. The force of the rainwater coming through the pipe did not cause it to burst. State Farm argued that its commercial property insurance policy is not intended to provide coverage for damage resulting from deferred maintenance. The court was concerned that, if coverage for Amish Connections's loss was found to exist, State Farm would become the insurer of all water damage to property caused by inadequate or delayed maintenance. That is not a risk that any insurer would agree to assume unless the insurance policy clearly stated to the contrary.

Please feel free to contact us if you need the assistance of a Des Moines insurance lawyer.

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