When the temperature in James's and Jane's basement dropped below freezing, an underground pipe leading from a well to the house froze and burst, saturating the ground beneath the foundation of the house. Soon, one corner of the house settled about three feet, causing a "twisting" of the house and a variety of serious problems. When the couple filed a claim for the damages under their homeowner's insurance policy, the insurer denied coverage.
The policy was an "all risks" policy, meaning that it covered all perils not specifically excluded by the policy language. The insurance company relied on an exclusion in the policy for "settling, shrinking, bulging, or expansion, including resultant cracking of pavement, patios, foundations, walls, floors roofs, or ceilings." There was no dispute that the house had "settled," but James and Jane argued, and the court agreed, that the term "settled," be used in the exclusion, meant a gradual sinking of a structure resulting from the natural condition of the soil, to which practically every building is subjected. In the case at hand, the settling was caused by an abrupt, unexpected event: the burst pipe. This was an incident that James and Jane reasonably expected to be covered, in light of the terms of the policy.
The court looked not just at the language in the "settling" exclusion itself but also at its larger context in policy. The exclusion was one of eight in a paragraph that dealt only with exclusions entailing natural or environmental concerns, including basic wear and tear. It was reasonable for the homeowners to interpret the "settling" exclusion as referring to the "natural" settling of a structure and not to a condition attributable to an external, sudden cause such as the burst water pipe.
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