Misrepresentation About Water Damage Is Not “Property Damage”

About a year after a married couple sold their home, the buyers sued them for fraudulent misrepresentation. The buyers contended that the sellers had falsely represented that the home had no moisture or water problems, no damage due to flooding, and no problems with its foundation. The sellers, in turn, asked a state court to declare that the carrier on their homeowners insurance policy was obligated to defend and indemnify them against the buyers’ lawsuit.

A state court ruled that the sellers’ insurer was within its rights to deny that there was coverage under the policy with the sellers. As with so many disputes over insurance coverage, the meaning of the terms used in the policy was crucial. The homeowners policy covered an occurrence that resulted in either bodily injury or property damage. An “occurrence” was defined by the policy as “an accident that results in damage.”

The court conceded that the commonplace use of the term “occurrence” in insurance policies generally has the effect of broadening coverage and removing the need to find an exact cause of damage, so long as damages are not intended or expected by the insured. However, the bottom line is that the occurrence must still stem from an accident.

An accident, by nature, is an unforeseen occurrence of an untoward or disastrous character, or, put a little differently, an undesigned sudden or unexpected event of an inflictive or unfortunate character. In the litigation against which the sellers wanted the insurer to defend them, the gist of the allegations was that the sellers had made false statements, not that they had caused property damage by means of an occurrence/accident.

The sellers would have to defend themselves without the assistance of their homeowners insurance company.

Posted in Insurance and tagged , , .