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Wisconsin Court of Appeals Holds that Insurance Policy’s Water Exclusion and Insured’s Failure to Satisfy the “Independent Concurrent Cause” Rule Precludes Coverage When Insured’s House Collapsed After Rain-Saturated Soil Moved From Underneath the House

In American Family Mut. Ins. Co. v. Schmitz, the Wisconsin Court of Appeals held there was no coverage when heavy rain saturated the soil beneath a house causing the soil to move and the house to collapse. At the time of the collapse, the foundation of the house was being excavated without a retaining wall. The court concluded that, even though the failure to build a retaining wall was a covered risk, the insurance policy’s water damage exclusion and the insured’s inability to satisfy the “independent concurrent cause” rule precluded coverage for the loss.

For the first time the court set forth a definition of “surface water.” It also considered whether to apply an “anti-concurrent cause” provision. The policy provided that American Family did not insure loss caused by “water damage,” defined in part as “surface water.” In addition, the policy provided that loss caused by water damage was “excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” Schmitz argued that the water causing damage was not surface water but rather was rain water and, regardless, any once-present surface water lost its character as such when a man-made trench located on the property as a result of the excavation altered the course of the water. The court disagreed with both arguments.

First, the court determined that the water causing damage was surface water, observing that other courts have defined “surface water” as water that is derived from falling rain. It observed that “[t]o limit the definition of surface water to water that does not originate as rain would leave the term surface water without much meaning.”

Second, the court rejected Schmitz’s argument that any water that might have been surface water ceased to be so when the man-made excavation trench altered the water’s course. The court reasoned that the trench was not a “defined channel” created for “the purpose of diverting water.” It further reasoned that it would render a surface water exclusion “virtually useless” to hold that when water touches “something humanly created” it ceases to be surface water.

After it resolved the issues related to the water damage exclusion, the court addressed American Family’s arguments related to the “anti-concurrent cause” provision, but ultimately did not apply that provision. American Family argued that an “anti-concurrent cause” provision precludes coverage whenever an excluded risk causes loss, regardless of the presence of any other contributing causes. The court declined to adopt such a rule. Instead, the court cited Wisconsin’s “independent concurrent cause” rule, which states that the covered cause “must provide the basis for a cause of action in and of itself and must not require the occurrence of the excluded risk to make it actionable.” The court concluded that Schmitz did not satisfy this rule because the covered risk (failure to build a retaining wall) “clearly would not have been actionable without the occurrence of the excluded risk (surface water washing out the earth underneath the home).”

American Family Mut. Ins. Co. v. Schmitz, 2010 WL 4105530 (Wis. Ct. App. Oct. 20, 2010)

For more information on this case or if you have any questions regarding any insurance coverage issues, please contact an attorney.

©2020 von Briesen & Roper, s.c


About this Author

Heidi Vogt, von Briesen Roper Law Firm, Milwaukee, Insurance and Litigation Law Attorney

Heidi Vogt is a Shareholder and Co-Chair of the Litigation and Risk Management Practice Group as well as the Chair of the Insurance Coverage and Risk Management Section. Her practice focuses on insurance coverage litigation, commercial disputes, constitutional law, and complex litigation. She has represented insurance companies in Wisconsin and across the country in both state and federal courts in complex insurance coverage matters for more than 20 years.

She represents and counsels insurance clients on a wide variety of...

Douglas Raines, Von Briesen Roper Law Firm, Milwaukee, Real Estate, Insurance And Litigation Law Attorney

Doug Raines is a Shareholder in the firm’s Litigation and Risk Management Practice Group. His practice focuses primarily on commercial litigation, insurance defense, and appellate work.

Doug has helped clients achieve positive outcomes through settlement of numerous cases ranging from slip-and-fall, breach of contract, landlord-tenant, and insurance coverage issues.

Before joining von Briesen, Doug served as the law clerk to the Hon. Patience D. Roggensack of the Wisconsin Supreme Court (2007 – 2008 term).

Doug is the author or co-author of multiple law review articles. His work on affirmative action jurisprudence, New Federalism, and Wisconsin’s risk contribution doctrine has been published in the Marquette Law ReviewBoston University Law Review (co-author with Scott A. Moss), and Pace Environmental Law Review (co-author with Peter G. Earle and Fidelma Fitzpatrick), respectively.