No Coverage for “Indirect” Water Damage under Extended Water Damage Endorsement

In Tremblett v TD Insurance Direct Agency Ltd., 2023 BCSC 1366, a summary trial decision on insurance coverage, the BC Supreme Court adopted a narrow interpretation of the words “caused directly” in a homeowner’s extended water damage policy. Where a policy includes such a phrase, losses precipitated by water damage will only be covered where water was the immediate cause of the loss.

The plaintiff owned a residential property in Okanagan Falls where he lived with his spouse. He purchased a homeowner’s insurance policy and an additional extended water damage endorsement for the property. The extended water policy provided coverage for specific classes of water damage “caused directly to the insured property.”

In June 2020, when the plaintiff returned from a four-day vacation, he found that the ground beneath his home had settled or shifted, causing property damage.

A geotechnical engineer determined that high groundwater levels had likely caused the settling, undermining a significant portion of the plaintiff’s property. The high groundwater levels were likely caused by a combination of three factors:

  1. the over-irrigation of nearby sports fields;
  2. possible leaking water lines; and
  3. the diversion of a nearby creek by a sanitary sewer line trench near the property.

The parties agreed that none of these factors were within the plaintiff’s control.

The insurer denied the plaintiff’s claim on the basis of three exclusion clauses in his policy. The plaintiff commenced an action seeking a declaration of coverage.

Despite noting that “the plaintiff [was] an extremely sympathetic litigant,” having purchased additional water damage coverage and being faced with property damage caused by factors outside his control, the Court found in favour of the defendant insurer. It found that water was not the direct cause of the damage to the plaintiff’s property; rather, the water had caused subsidence which, in turn, had caused the damage. This meant that the plaintiff’s extended water policy did not apply. Further, none of the specific types of water damage set out in the extended water policy fit the facts of the plaintiff’s situation, reinforcing the Court’s determination that the policy was not applicable.

Additionally, the Court held that an exclusion clause in the plaintiff’s policy which related to earthquake, erosion, and other geological phenomena was worded unambiguously and thus excluded the plaintiff’s claim from coverage under his policy. Applying the established legal principles of insurance policy interpretation, the Court was once again left to conclude that the loss was not covered by the policy. This decision reinforces the significant impact of the use of careful, unambiguous language in insurance policies when it comes to decisions regarding coverage. More specifically, it is evidence that “caused directly” language in an endorsement will be narrowly construed.