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Thomas v. Farmers Insurance Company, Inc.

United States District Court, N.D. Oklahoma

February 2, 2018




         Before the Court is Defendant Farmers Insurance Company, Inc.'s Motion for Summary Judgment (Doc. 38).

         I. Factual Background [1]

         Farmers Insurance Company, Inc. (“Defendant”) issued a homeowners insurance policy covering Plaintiffs' property in Sand Springs, Oklahoma (“the Policy”), including an Earthquake Endorsement for “direct physical loss or damage caused by earthquake.” (Def.'s Ex. 1.) On November 14, 2014, Plaintiffs submitted a claim to Defendant, asserting that their residence and personal property were damaged by an earthquake that occurred on November 12, 2014, with an epicenter near Conway Springs, Kansas, southwest of Wichita.[2] According to Plaintiff Judith Thomas (“Thomas”), she informed her agent that on November 12, 2014, while she was home, she experienced shaking of the house and heard a loud boom, and that two days later, while she was having previously scheduled work done in the utility closet, a large crack was discovered in the slab under the furnace.

         According to Thomas, an agent for Defendant told her that Defendant would not open an earthquake claim and an adjuster would not come out to her property until she hired a plumber to scope the drains. On November 18, 2014, Thomas hired Roto Rooter to perform a drain scope. Roto Rooter ran a camera scope checking all joints from the vent to the sewer in Plaintiffs' home. Roto Rooter found no breaks or shifted areas in the pipe going to the sewer. Roto Rooter advised that the next step would be to water test the system.

         Defendant opened a claim and assigned the claim to its representative, Michael Young (“Young”). Young testified in his deposition that he had handled one or two earthquake claims before Plaintiffs' claim and Defendant did not pay either claim. Young does not recall having any previous training on earthquake claims. On November 19, 2014, Young inspected Plaintiffs' home. According to Thomas, when Young introduced himself, he informed her that Defendant had never paid an earthquake claim in Oklahoma. Young walked throughout the home and looked at everything Thomas pointed out. Thomas pointed out damage including a crack in the slab that extended to the garage, and separation and cracks in the ceiling and wall of the master bathroom.

         Young hired engineer William B. Ford (“Ford”), who issued a report after inspecting the property on December 16, 2014. Young testified that he did not know whether Ford had any experience with earthquake damage and did not ask. Ford found that cracking on interior and exterior surfaces of the home, as well as settlement of the slab behind the hot water tank, was “not consistent with the type of activity normally associated with earthquake activity, ” and with one exception, this cracking “appears to be from normal, minor seasonal shrinking and swelling of clay soils common to this region.” (Def.'s Ex. 5.) The report also noted that “the settlement of the slab behind the water heater and adjacent to the furnace plenum appears to be related to erosion of the soil, possibly because of a plumbing leak.” (Id.)[3]

         On December 23, 2014, Young notified Plaintiffs by letter that Defendant was declining to cover their claim for earthquake damage and included a copy of Ford's report, stating that “[w]e have sent out an engineer and he has confirmed the damage to your dwelling to be a result of settling or earth movement caused by water. He confirms the damage was not caused by earthquake activity. . . . Unfortunately, there is no coverage for your claim based on the facts known to us at the present time.” (Def.'s Ex. 6.)

         Plaintiffs subsequently reported a claim to Defendant for a plumbing leak, which was mentioned in Ford's report as a possible source of settlement of the slab in the utility closet behind the hot water tank and adjacent to the furnace plenum. Defendant contacted C-It-All Leak Detectors & Plumbing, Inc. (“C-It-All”), which checked Plaintiffs' water system for leaks on January 2, 2015. C-It-All determined there was no leak in the water system but found that the hot water tank had leaked and the concrete had dropped approximately five inches behind the hot water tank. C-It-All also noticed that the duct work behind the plenum was rusted.[4]

         In a letter dated January 7, 2015, Defendant stated that it determined the reported leak was from the hot water tank.[5] Defendant stated that water from this leak found its way into the plenum and duct behind the plenum, causing the duct work behind the plenum to rust, and that water from this leak also leaked through a crack in the slab, causing soil to wash out, which then caused the slab in the utility closet to drop. Defendant concluded that the drain line in the slab underneath the water heater was not damaged, but was clogged. Defendant denied coverage for the slab settling, rusted duct work, and clogged drain line. Defendant found coverage for the cleaning of the duct and plenum due to their contact with water, but Defendant's estimate for this cleaning fell below Plaintiffs' deductible.

         On January 16, 2015, Plaintiffs retained Herndon Engineering (“Herndon”) to perform a structural inspection of the home. Herndon found visible mold and water damage on sheetrock next to the hot water tank, damage near the hot water tank most likely caused by a leaking air conditioning condensate pan, and separation of bathtub walls due to settlement. Herndon also stated that “[t]here is no significant evidence of earthquake damage. . . . the house has experienced settlement in several areas of the floating interior floor slab.” (Pls.' Ex. 13.)

         Herndon reviewed the reports from Roto Rooter and C-It-All and opined that “there still has not been a proper plumbing investigation by a qualified plumbing contractor that would provide all the testing available in a proper manner. With this in mind it would be difficult or impossible to render an opinion as to the most likely cause of the interior floor slab settlement in the utility room and also the master bathroom and living room.” (Id.) Herndon suggested “starting over” by having a static test on the drain line and a pressure test on the supply lines. (Id.) Defendant reimbursed Plaintiffs for their expenses in retaining Herndon and finding the plumbing leak. Thomas testified that it was reasonable for Defendant to consider the Herndon report.

         Plaintiffs hired another engineer, CDR Inspections (“CDR”), which inspected the property on March 20, 2015. In a report dated March 21, 2015, CDR stated that “it is the opinion of this engineer that there was evidence of activity and damage in the foundation around the back or east area of the home and around the north and east areas of the garage that should be considered structurally defective. This appeared to be primarily from the extreme moisture variation conditions beneath the footings and slab. It appeared that the primary cause of the extreme moisture infiltration was from a plumbing problem beneath the utility room area. It appeared the contributing causes of an increase in activity and damage was from earthquakes in the area and possible further plumbing damage from the activity.” (Def.'s Ex. 12.)

         On or about March 27, 2015, Plaintiffs hired C-It-All to perform a plumbing pressure test on the domestic water system and the draining system. C-It-All found the draining system lost approximately three gallons in five minutes and that there was a complete break in the PVC pipe under the slab that runs outside.

         Defendant asked Ford to review the Herndon and CDR reports. Ford stated that he agreed with Herndon's “conclusions about the need for thorough and complete testing of the plumbing systems. The information from these tests may more fully lead to the causes of damage to this house.” (Def.'s Ex. 13.) Ford concluded that “[n]one of the reports have identified any specific additional damage that would have been caused directly by earthquake activity, but all have noted significant evidence to relate the damages to moisture driven soil activity from both natural causes and possibly from leaking pipes.” (Id.)

         On April 15, 2015, Young sent Plaintiffs another letter declining their earthquake claim, stating: “[w]e have reviewed your documentation as well as having an engineer review the documents you have provided. Based on the information provided we still found the damage to your dwelling was a result of settling or earth movement. The damage was determined to not be caused by an earthquake.” (Def.'s Ex. 14.)

         On April 16, 2015, Defendant sent Plaintiffs a letter regarding the plumbing leak claim. Defendant concluded that based on the documents provided by Thomas, there was a leak in the drain line running outside from the utility closet. Defendant determined certain repairs to the slab were necessary but concluded that the pipe and the settling caused by the leaking were excluded from coverage. Defendant issued payment to Plaintiffs in the amount of $5, 365.78, stating ...

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