A recent report and recommendation by a federal magistrate judge in Arizona recommends that partial summary judgment be granted in favor of a certified class of insureds, in a property insurance class action involving polybutylene (PB) plumbing.  Given this result, other insurance companies might see new “piggyback” class action filings on this issue, which potentially could create significant exposure for the industry. 

In Guadiana v. State Farm Fire and Casualty Company, 2012 U.S. Dist. LEXIS 8262 (D. Ariz. Jan. 25, 2012), the plaintiff’s house had polybutylene (PB) piping that leaked.  She claimed that because of a defect in this kind of piping, it is not feasible to repair a leaky section of pipe.  She claimed that State Farm was contractually obligated to replace all of the piping in the house, in addition to replacing parts of the structure that must be torn out in order to access the piping.  Last March, the court granted certification of an Arizona statewide class.  After notice was sent to the class and the opt-out period expired, the plaintiff filed a motion for partial summary judgment on coverage.

The policy provision at issue provided that:

If loss to covered property is caused by water or steam not otherwise excluded, we will cover the cost of tearing out and replacing any part of the building necessary to repair the system or appliance.  We do not cover loss to the system or appliance from which the water or steam escaped.

According to the opinion, State Farm’s position was that the water damage was covered, but there was no coverage for the cost of accessing and replacing parts of the plumbing system that were not leaking.  State Farm also relied on an exclusion for loss due to a “latent defect” and an exclusion for “loss consisting of . . . defect . . . in . . . materials used in construction or repair.”  It does not appear there was any focus on the second sentence quoted above, i.e., “We do not cover loss to the system or appliance from which the water or steam escaped.”  That seems also potentially applicable here, but I have not read the briefs and prior decisions in this case.

The magistrate judge concluded that the exclusions were not applicable because “[t]hese provisions exclude any loss consisting of defective construction materials,” and “[t]he water damage is the covered loss, not the defective plumbing system.”  Id. at *10.  I find that conclusion somewhat puzzling because the latent defect exclusion, although not quoted with precision in the opinion, appears to apply where a loss is caused by a latent defect, and it seems like this loss likely was caused by a latent defect in the piping.  If the second exclusion (which is not quoted in its entirety in the opinion) applies only to “loss consisting of” a defect in materials, that would be different from some other commonly-used policy forms.  I’ve seen a number of policy forms that have exclusions for a loss “caused by” a defective material. 

This opinion also reflects a debate between the parties about the use of the word “repair” in the tear-out provision quoted above.  State Farm argued that “repair” must have a different meaning from “replace,” based on dictionary definitions, the context of the policy, and case law.  The court concluded essentially that “repair” could mean total replacement if the only practical and effective means of repair was a total replacement of all the piping.  The court also found, at a minimum, an ambiguity.  The court also cited public policy and a desire to make the insured whole.  The court ultimately concluded, in granting partial summary judgment in favor of the class, that:

If Guadiana can establish as a matter of fact that the system that caused the covered loss includes all the pipes in her house and it was necessary to replace all the pipes to repair that system, State Farm is obligated to pay the tear-out costs necessary to replace all the pipes, even those not leaking.

Id. at *18-19.

I don’t think this decision is a cause for alarm by insurance companies.  It is only a magistrate judge’s recommended ruling, which likely will be objected to and reviewed by the district judge.  And even if the district judge adopts this recommendation, that is only the view of one trial court, and there are some decisions elsewhere that disagree on some of these points.  But it would not surprise me to see some additional companies hit with new class action filings on this issue.  It potentially could create substantial exposure for the insurance industry if courts rule that every time a leak occurs with PB piping, homeowners’ policies require that the entire piping system must be replaced.  I come at this from an insurance industry perspective, but it seems like the kind of problem, somewhat analogous to Chinese-made drywall, for which the manufacturer, rather than a homeowners’ insurer, should bear the responsibility, as courts have concluded nearly unanimously with respect to Chinese-made drywall.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.