This breach of contract claim arose out of a denial of insurance coverage by Liberty Mutual Fire Insurance Company. Theresa Bao had an all-risk home insurance policy with Liberty Mutual when her Baltimore home was damaged during a strong wind and rain storm. Bao’s home inspector concluded that the home was damaged when a wind-blown object broke the sliding glass door and, consequently, rain entered the basement and collected at the basement floor.
Conversely, Liberty Mutual’s inspector claimed that the damage occurred after water accumulated in the outside basement stairwell leading to the glass door, causing the door to break and water to enter the basement. Bao’s insurance plan excluded water damage, and included “surface water” in the definition of water damage. Liberty Mutual denied coverage for damage to Bao’s basement. Bao brought suit with U.S. District Court. Liberty Mutual moved for summary judgment.
The District Court first found that water from rain constituted “surface water” under Maryland case law. Bao then argued that the damage here was the direct result of wind, not water, and thus, should be covered. The Court rejected this argument, because the policy stated that damage from wind was only covered if it was not first excluded by the water damage exclusion. Because the damage fell under a specific exclusion, in these particular facts, the Court found that the policy did not permit Bao to circumvent the water damage clause.
Additionally, Bao argued a matter of first impression before the Court, whether the District should accept the “efficient proximate cause” argument. Under this reasoning, even if the exclusion was applicable and water damage was excluded, the wind damage occurred prior to the water damage, and thus should be considered as the proximate cause of the damage.
The Court rejected the proximate cause reasoning and supported the “concurrent causation” scheme found in the policy language. Under this reasoning, an insurance plan can exclude certain types of damage, and the issue of proximate cause will not affect the exclusions.
The District Court granted summary judgment to Liberty Mutual.
