IL App. 3rd Dist.: Groundwater Seepage Through Floor Excluded

A third district Illinois appellate court, in an opinion written by Judge Jodi M. Hoos, upheld the decision of the circuit court that damage caused from the seepage of below ground water through a floor was excluded under a policy which excluded coverage for damage caused by “water below the surface of the ground.”

Central Illinois Compounding, Inc. d/b/a Preckshot Professional Pharmacy (“Preckshot”) operated Preckshot Professional Pharmacy in a leased space in Peoria.  AT&T was performing directional boring behind Preckshot’s premises.  The boring was not related to Preckshot, was not performed at Preckshot’s request, and was not done on Preckshot’s premises.  However, the boring damaged a water service line located approximately 18 inches from the Preckshot premises, causing a discharge of water that flooded the Preckshot premises above the ground.  All direct physical loss and damage to the premises occurred above the surface of the ground.

Preckshot filed a claim with its insurer, Pharmacists Mutual Insurance Company (“Pharmacists Mutual”).  Pharmacists Mutual hired an engineering company to determine the cause of the damages.  According to the engineering company, the water from the struck line flowed under a concrete slab and came up through the ground to flood the Preckshot interior.  Pharmacists Mutual denied the claim because the policy excluded coverage for damage caused by “water below the surface of the ground.”

Preckshot filed suit against Pharmacists Mutual alleging breach of contract and bad faith under section 155 of the Illinois Insurance Code.  Pharmacists Mutual filed a counterclaim for a declaration that it was not obligated to provide coverage under the policy.  In ruling on the parties’ motions for summary judgment, the circuit court found that there was no coverage under the Pharmacist Mutual policy.

In a section labeled “Additional Exclusions” Subsection 9 “Water”, the policy provided, “‘We’ do not pay for loss or damage caused by: … (4) water below the surface of the ground.  This includes water that exerts pressure on or flows, seeps, or leaks through or into: (a) basement’s, whether paved or not; (b)doors, windows, or other openings; (c) foundations, floors, walls, or paved surfaces; or (d) swimming pools, septic tanks, or other structures[.]”

On appeal, Preckshot argued that the plain meaning of “water below the surface of the ground” exclusion only applied to loss or damage from water that was below the surface.  The appellate court disagreed.  The appellate court held that the clause “below the surface of the ground” applied only to the origination of the “water.”  The actual loss or damage did not need to be below the surface of the ground.  The appellate court was also not persuaded by Preckshot’s argument that because the water seeped up through the floor it was no longer “water below the surface of the ground” at the time that it caused damage or loss, and thus, the damage was caused by water above the ground.  According to the appellate court, the policy expressly contemplated the issue at hand, where “water below the surface of the ground” seeped through the floor and caused damage.  Thus, under the terms of the policy, that damages were excluded.  The appellate court did not need to consider the argument that Pharmacists Mutual acted in bad faith because it found there was no coverage.  Central Illinois Compounding, Inc. v. Pharmacists Mutual Ins. Co., 2018 IL App (3d) 170809 (Sept. 6, 2018).