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Danganan v. American Family Mutual Insurance Co.

United States District Court, D. Nevada

September 30, 2019

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin Insurance Corporation Defendant.




         Before the Court are Plaintiffs Robert and Myrna Danganan's (“the Danganans”) and Defendant American Family Mutual Insurance Company's (“American Family”) Motions for Summary Judgment. ECF Nos. 42, 43. For the following reasons, the Court denies American Family's Motion in its entirety and grants the Danganans' motion in part.


         The Danganans sued American Family in the Eighth Judicial District Court of Clark County on or around October 4, 2017. ECF No. 1. In their complaint, the Danganans brought breach of contract and tortious bad faith claim-handling claims against American Family for its failure to make payments for water damage allegedly covered by its policy. ECF No. 1-1. American Family removed the case to this Court on November 3, 2017. ECF No. 1. American Family answered on November 14, 2017. ECF No. 5. Both parties moved for summary judgment in October 2018. ECF No. 42, 43. Both motions were fully briefed. ECF Nos. 44, 45, 46, 47. The Court held a hearing on the motions for summary judgment on April 24, 2019. ECF No. 49. The Court took both motions under submission for a written order to issue. ECF No. 49.


         The Court makes the following findings of fact. These findings are limited to this order and are not meant to usurp findings that a jury would have to make in a jury trial.

         a. Undisputed Facts

          The Danganans purchased a home located at 9610 Drayton Avenue, Las Vegas, Nevada 89148 (the “property”) in 2001. The home and its contents were insured by American Family under an insurance policy that provided certain insurance coverage effective January 8, 2016 through January 8, 2017 (the “Policy”).

         The Policy generally provides insurance coverage for damage to structures, personal property and loss of use of property. Under the main heading, “Coverage A-Dwelling and Dwelling Extension”, and the subheading “Losses Not Covered, ” the Policy proceeds to list eight conditions under which losses are excluded. Number three under that subheading states that American Family “do[es] not cover loss . . . resulting directly or indirectly from . . .Continuous or Repeated Seepage or leakage of water or steam from within a plumbing . . . system . . . which occurs over a period of weeks, months or years.” Number six under that same subheading is titled “Other Causes of Loss.'' Within that subheading of “Other Causes of Loss, ” the Policy provides that it “do[es] not cover loss to the property . . . resulting directly or indirectly from or caused by one or more of the following . . .birds, vermin, rodents, insects or domestic animals.” However, and importantly, within that same “Other Causes of Loss” subsection, the Policy also states that “[i]f any of these cause water or steam to escape from a plumbing . . . system, we cover loss caused by the water or steam.” (emphasis added). The finally sentence under the category “Losses Not Covered” section states that the Policy “do[es] cover any resulting loss to property described in Coverage A-Dwelling and Dwelling Extension from items 2 through 8 above, not excluded or excepted in this policy.” The words “seepage” and “leakage” are not defined in the Policy.

         On the evening of September 21, 2016, Pat Warczynski, the Danganans' daughter's future mother -in-law, went to stay at the property for a few days with the Danganans' permission. When she arrived, the property appeared to be flooded. At that point, no one was living at the property full-time, and it was unknown what had caused the failure of the water supply line. Warczynski spoke with the Danganans via video chat, who observed that a “continuous flow” of water appeared to be coming out of the water line to the toilet in the bathroom.

         On September 21, 2016, at around 9:30pm, the Danganans submitted a claim with American Family. On September 22, 2016, the Danganans' claim was assigned to Denise Newman, who completed an initial review and phone conversation with the Danganans on that same day. Also on that same day, September 22, 2016, American Family completed review of photos of the property that it had received through a company hired to inspect the leak called Service Master. American Family determined that “the cause of loss [was] the supply line of the toilet on [the] first floor.” American Family noted that it was “unknown if the line broke or was chewed by the rats/mice seeking water.” Notes entered by American Family into its claim activity log at around that time indicated that it appeared that the leak had been “occurring for an extended time . . . a month or longer.” Based on this information, a note was entered into American Family's claim activity log that there was “compelling evidence due to the extent of water, mold, deterioration and rodent damages[sic] to indicate that this toilet supply line leak has been continuing for at least 2 weeks or more.” On Friday September 23, 2016, the Danganans travelled to Nevada and inspected the property with Newman. Vermin droppings and mold were present throughout the property on the date of inspection. Sometime between September 23 and September 26, 2016, American Family reviewed water bill statements. Water usage in the billing statement for July 8 through August 8, 2016 showed an increase in water usage from 55 gallons to 218 gallons in average daily use. Another billing statement from between August 9, 2016 through September 7, 2016 showed an increase in water usage from 218 gallons to 466 gallons in average daily use. After reviewing this information, American Family determined that the water damage was caused by a continuous or repeated leakage of water or steam from within a plumbing system which occurred over a period of at least several weeks if not months, and denied the claim on September 26, 2019. American Family sent a denial of coverage letter to the Danganans on September 26, 2016.

         The Danganans hired Hudson Public Adjusters to assist them with their appeal of American Family's denial of their claim. The Danganans also hired an expert, M. Chris Gusik, a Senior Field Consult and Managing Partner with Adaptive Environmental Consulting, who evaluated the evidence concerning the water damage. The expert noted that “[s]ubject property water damage would have occurred immediately at line rupture provided water pressure. Water escape occurred over a period of 57 to 70 days provided calculated cycle flow rates and billings.” The expert also stated that “[t]he water line condition and Property conditions support the water line observed, as well as other in-property water lines pictured attached to appliances, failed likely from “vermin” chew damage.” American Family's corporate representative testified in his deposition that, under the Policy, if a rodent, like a mouse/rat chewed through the water supply line causing it to fail, American Family would cover the loss caused by the water if the “the water damage occurred right away.” American Family's representative also agreed that gnaw marks would be indicative that rodents or vermin had chewed through the line.

         Neither the Danganans nor American Family dispute the fact that the cause of the supply line leak in the toilet was due to ...

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