Thursday, July 9, 2015
According to a ruling last week by a federal judge in Michigan, AAA Insurance improperly denied full coverage for policyholders’ water damage claims in violation of the plain language of their homeowners, renters, and condominium protection policies.
On July 2, 2015, U.S. District Court Judge George Steeh of the Eastern District of Michigan issued an Opinion & Order in the lawsuit (Monteleone v. The Auto Club Group, et al., Case No. 13-CV-12716) determining that AAA misapplied a water loss exclusion, leaving potentially thousands of insureds without coverage and forced to pay for costly repairs and restorations themselves.
Concluding that AAA breached its own insurance policy, Judge Steeh rejected AAA’s assertions that its interpretation of the contract was reasonable, finding that those interpretations were “…not grounded in the actual written terms of the policy…” and, if accepted, would render other language in the policy “meaningless.”
The lawsuit, initially filed in 2013, alleged that AAA engaged in a practice of classifying all water damage claims related to basement and floor drains as “back ups,” which typically involve municipal sewage entering the home. As stated in the insurance contract, back ups are expressly excluded from policy coverage, and are only afforded limited coverage if the policyholder purchases an optional rider; by comparison, property damage caused by an overflow, which originates from a plumbing condition or failure inside the home, is supposed to be covered up to the policy limit.
The plaintiffs’ complaint alleged that treating all basement and floor drain overflows as back ups has allowed AAA to handle these common claims without investigating the true cause of the loss, a systematic process that has saved AAA millions of dollars while leaving policyholders to suffer.
“Judge Steeh’s Opinion indicates that AAA has wrongfully employed the exclusion to deny claims of policyholders in nine states who suffered a basement drain or floor drain water loss,” explains co-lead counsel Michael Fabian of Fabian, Sklar & King, a law firm that focuses on representing policyholders in insurance disputes. “Following this ruling, those policyholders may pursue their contractual right to coverage.”
“We argued in court documents that, beginning in 2009, AAA was outright denying water loss claims caused by overflows in flooded basements without investigating where the water was coming from – a violation of the insurance contract and governing law,” says co-lead counsel Jason Thompson of Sommers Schwartz, P.C. “We further alleged that AAA engaged in a deliberate plan to order its offices across the U.S. to deny these claims and force customers to buy riders that would cap AAA’s exposure at no more than $25,000. The Monteleones’ property damage was more than $100,000 yet they were advised by AAA that they were limited to the amount of the water loss rider they purchased.”
The lawsuit was intended to become a class action that would include all affected policyholders, but the Court’s recent Opinion & Order denied class certification, finding that the law requires that potential class members first decide whether to pursue their claims separately before certifying a class.
Accordingly, AAA insureds from Kentucky, Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, West Virginia, and Wisconsin are strongly advised to read Judge Steeh’s full Opinion & Order and the original Complaint to determine if their water damage claims are in line with those that AAA has mishandled, and if they wish to file individual actions.”