The court confirmed that there was no coverage for damage to the policyholder's building caused by a large volume of water. Praetorian Ins. Co. v. Arabia Shrine Ctr. Houston, 2016 U.S. Dist. LEXIS 20186 (S.D. Texas Feb. 19, 2016). The damage occurred when water began seeping through the baseboards of the Shrine. Employees saw a large amount of water entering the building. Eventually, the city shut off a water main valve. It was later determined that an 8 inch diameter fire suppression metal pipe failed at the elbow, causing over one million gallons of water to be released into the building. Damages were estimated at nearly $1.7 million. Clean up and repair costs amounted to $237,156. The Shrine held a commercial property policy. The insurer eventually agreed to pay $62,376. This consisted of $12,376 to remove and replace the pipe, $25,000 for limited additional coverage for water damage under a Masonic Coverage Extension in the policy, and $25,000 for damage to personal property. The insurer then filed suit for a declaratory judgment. Under the property policy, there were two coverage requirements. First, the loss or damage had to be to "Covered Property." Second, the cause of the loss or damage must have been from a "Covered Cause of Loss." "Covered Property" included a building and personal property used to maintain the building. "Covered Property" did not include foundations of buildings or underground pipes. The parties disagreed whether the concrete slab that heaved and cracked qualified as a foundation. The court did not reach this issue because the Water Exclusion Endorsement applied. The endorsement stated the insurer would not pay for damage caused by "water under the ground surface pressing on, or flowing or seeping through . . . foundations [or] walls." Nevertheless, the Shrine argued that the ensuing loss clause for sprinkler leakage restored coverage. Under this provision, if sprinkler leakage occurred, the insurer would "pay for the loss or damage caused by . . . sprinkler leakage (if sprinkler leakage is a Covered Cause of Loss)." The insurer argued the ensuing loss provision did not bring coverage back because there was no new loss to property that was not excluded by the policy. The court agreed. The policy required a particular sequence of events. First, an excluded cause of loss had to occur. Then, that excluded cause of lost had to result in sprinkler leakage. Finally, the sprinkler leakage had to cause loss or damage. Here, the second and third steps were missing. Although an excluded cause of loss occurred, there was no evidence that the water under the surface of the ground from the failed pipe "resulted in" sprinkler leakage or that a subsequent sprinkler leakage caused further loss or damage.
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