Insured’s Claim for Water Damage Dismissed with Leave to Amend

    The court granted the insurer's motion to dismiss the insured's claim for water damage under a homeowners' policy, but granted leave to amend. Thompson v. State Farm Gen. Ins. Co., 2024 U.S. Dist. LEXIS 98486 (C.D. Cal. June 3, 2024). 

    The insureds' first amended complaint alleged they "suffered a sudden and accidental water loss below their slab in their home." A plumber hired by the insureds discovered "a copper pipe burst inside a structural concrete footing between a manifold in the living room and the water heater." The insureds notified their insurer, State Farm.

    Claim adjuster Andrea Acevedo conducted a visual inspection. The complaint alleged she did not "inspect or view the pipe, or have a testing conducted on the pipe." Acevedo sent a letter denying the insureds' claim based upon her finding that "because the loss was caused by a slab leak, there is no coverage available for the loss." The letter explained that the hot water supply line under the home failed due to wear, tear, deterioration and/or electrolysis. The predominant cause of loss to the failed pipe was due to one or a combination of rust, electrolysis, corrosion, wear, tear and/or deterioration. The policy did not cover water damage caused by water from below the surface of the ground. Further coverage for wear, tear, deterioration, rot, mold, maintenance, water from below the surface of the ground and a continuous or repeated seepage or leakage of water was excluded. 

    State Farm denied the claim. The insureds alleged there was no basis for State Farm to make any conclusion as to the age, condition, or appearance of the burst pipe because it was not physically visible. 

    The insureds filed suit raising the following causes of action: (1) declaratory judgment; (2) breach of contract; (3) breach of the implied covenant of good faith and fair dealing; (4) unlawful, fraudulent, and unfair competition under California's Unfair Competition Law; and (5) intentional interference with a contractual relationship against defendant Acevedo. 

    State Farm filed a Motion to Dismiss. The court found that the first cause of action for declaratory judgment was duplicative of other causes of action raised. The insureds sought a declaration that State Farm "engaged in unlawful and improper claims handling" and "summarily denied water loss claims," which was unlawful, unfair and in bad faith. This claim addressed the same underlying issue in the insureds' breach of he implied covenant of good faith and fair dealing claim, and was thus duplicative of the third cause of action. The claim was also duplicative of the breach of contract claim because the insureds requested a declaration that State Farm's policy of "summarily denying the leak due to its location within the slab . . . was in breach of the Policy." Hence, State Farm's Motion with respect to the first cause of action was granted. 

    Regarding the fourth cause of action for violation of the Unfair Competition Law and its request for injunctive relief, the insureds failed to allege they lacked an adequate remedy at law. Further, the insureds failed to allege facts to support a finding that they were threatened by a repetition of the violation, as required by the statute. Therefore, the Motion was granted as to the court cause of action. 

    As to the fifth cause of action against Acevedo for interfering with a contractual relationship, the insureds failed to allege facts that defendant Acevedo was a third-party stranger to the contractual relationship because it was unclear if she was employed by State Farm. The Motion was granted as to the fifth cause of action.

    The court therefore granted the Motion to Dismiss causes of action one, four, and five, but granted leave to amend.