Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_07-cv-00326/USCOURTS-azd-4_07-cv-00326-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 12:635 Breach of Insurance Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Rosemary Guadiana, 

Plaintiffs, 

vs.

State Farm Fire and Casualty Company, 

Defendant. 

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No. CIV 07-326 TUC FRZ (GEE)

REPORT AND RECOMMENDATION

 Pending before the court is the defendant’s motion to dismiss for failure to state a claim

pursuant to Rule 12(b)(6), FED.R.CIV.P. [doc. #12] The plaintiff filed a response and the

defendant filed a reply.

The plaintiff, Rosemary Guadiana, claims the defendant breached her homeowner’s

insurance policy by failing to pay the costs of tearing out and replacing part of the structure

when she replaced her polybutylene plumbing. The defendant, State Farm Fire and Casualty

Company (State Farm), moves that this court dismiss the complaint for failure to state a claim

upon which relief can be granted.

The case has been referred to Magistrate Judge Edmonds for all pretrial matters pursuant

to Local Civil Rule 72.2. Rules of Practice of the U.S. District Court for the District of Arizona.

A hearing on the motion was held on Wednesday, January 9, 2008. The motion should

be denied. The homeowner’s policy covers the plaintiff’s claim as it is alleged in the complaint.

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FACTUAL AND PROCEDURAL BACKGROUND

The following facts are alleged in the complaint: Guadiana had a homeowner’s

insurance policy with the defendant, State Farm. (Complaint, p. 3.) On September 9, 2004, her

home sustained water damage when the plumbing leaked. Id.

Guadiana discovered her home plumbing system was constructed with polybutylene (PB)

pipe. Id. PB pipe is no longer used for home plumbing systems because the chlorine in the

water causes the pipe to become brittle and crack. Id. This pipe embrittlement cannot be

remedied. Id. The only feasible method of repairing a plumbing system constructed of PB pipe

is to replace all the pipe. Id. 

Guadiana claims State Farm is obliged, under her homeowner’s policy, to pay the costs

incurred in tearing out and replacing that part of the structure necessary to replace her entire PB

piping system. Id., p. 4. State Farm believes it is only obligated to pay the costs necessary to

access the portion of the pipe that was leaking. Id.

On July 11, 2007, Guadiana filed the instant class action in U.S. District Court. She

claims State Farm’s failure to pay the entire tear-out costs is a breach of contract and a breach

of the duty of good faith. 

On September 14, 2007, State Farm filed the instant motion to dismiss for failure to state

a claim upon which relief can be granted pursuant to Rule 12(b)(6). FED.R.CIV.P. As part of

its motion, State Farm attached the plaintiff’s insurance policy as an exhibit . The plaintiff filed

her response on October 1, 2007. State Farm filed its reply on October 11, 2007. A hearing on

the motion was held on Wednesday, January 9, 2008.

Standard of Review

To survive a motion to dismiss pursuant to Rule 12(b)(6), “factual allegations must be

enough to raise a right to relief above the speculative level, on the assumption that all the

allegations in the complaint are true even if doubtful in fact.” Bell Atlantic Corp. v. Twombly,

__ U.S. __, __, 127 S.Ct. 1955, 1965 (2007). “[A] well-pleaded complaint may proceed even

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if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is

very remote and unlikely.” Id. (internal punctuation removed).

Ordinarily, in ruling on a Rule 12(b)(6) motion, the court must limit its analysis to the

four corners of the complaint.. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). There is,

however, an exception to this rule for documents referenced by the complaint that are central

to the plaintiff’s claim and whose authenticity is not in dispute. Id. 

In the instant case, the insurance policy may be considered by the court. The policy is

referenced by the complaint. It is central to the plaintiff’s claim, and its authenticity is not in

question. 

DISCUSSION

“An insurance policy is a contract between the insurer and its insured.” Liberty Ins.

Underwriters, Inc. v. Weitz Co., LLC, 158 P.3d 209, 212 (Ariz.App. 2007). “Courts construe

the written terms of insurance contracts to effectuate the parties’ intent and to protect the

reasonable expectations of the insured.” Id. (internal punctuation omitted). “If the contractual

language is clear, we will afford it its plain and ordinary meaning and apply it as written.” Id.

The homeowner’s insurance policy contains the following provision:

We do not insure for any loss to the property . . . which consists of, or is directly and

immediately caused by . . .

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f. continuous or repeated seepage or leakage of water or steam from a:

(1) heating, air conditioning or automatic fire protective sprinkler system;

(2) household appliance; or

(3) plumbing system, including from, within or around any shower stall,

shower bath, tub installation, or other plumbing fixture, including their

walls, ceilings or floors;

which occurs over a period of time. If loss to covered property is caused by

water or steam not otherwise excluded, we will cover the cost of tearing out and

replacing any part of the building necessary to repair the system or appliance. We do not cover loss to the system or appliance from which the water or steam

escaped; . . .

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(Defendant’s motion, Exhibit A, p. 14, document page 9.) (emphasis added). The italicized

sentence is referred to by the parties as the “tear-out” provision.

State Farm agrees that damage resulting from a sudden release of water, as is alleged

here, is a covered loss. (Defendant’s motion, p. 10.); see also (Defendant’s motion, Exhibit A,

p. 13, document page 8, ¶ 12.) This “loss to covered property” triggers the tear-out provision.

The parties, however, dispute the scope of this coverage. State Farm argues the tear-out

provision obligates them to pay only for the costs associated with accessing the leaking pipe.

They argue the tear-out provision, as a matter of law, does not cover the costs incurred

accessing sections of pipe that were not leaking. The court does not agree with State Farm’s

construction of the policy.

Once the tear-out provision is triggered, State Farm is obligated to pay the tear-out costs

“necessary to repair the system or appliance.” The term “system” is not explicitly defined in

the policy, but the ordinary meaning of this term is a collection of individual parts working

together for a common purpose. See, e.g., Merriam Webster’s Collegiate Dictionary, 1197 (10th

ed., 1993) (system: “a regularly interacting or interdependent group of items forming a unified

whole.”). The court’s interpretation of this term is further supported by the use of the term

elsewhere in this subsection of the policy. Here, the term is used in the phrase “heating, air

conditioning or automatic fire protective sprinkler system.” (Defendant’s motion, Exhibit A, p.

14, document p. 9, ¶ f (1).) It is also used in the phrase “plumbing system, including from

within or around any shower stall, shower bath, tub installation, or other plumbing fixture,

including their walls ceilings or floors.” Id., ¶ f (3). 

These phrases indicate the term “system” could refer to a heating system, an air

conditioning system, an automatic fire protective sprinkler system, or a plumbing system. There

is no indication that the term “system” was used so narrowly in the tear-out provision that it

must apply only to the pipe that burst and caused the covered loss. If Guadiana can establish

as a matter of fact that the system that caused the covered loss includes all the pipes in her house

and it was necessary to replace all the pipes to repair that system, State Farm is obligated to pay

the tear-out costs necessary to replace all the pipes, even those not leaking. See also

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Schumacher v. Lumbermens Mut. Cas. Co., 154 So.2d 637, 639 (La.App. 1963) (Whether

gutters and drainpipe were part of the plumbing system was an issue of fact.).

State Farm argues the tear-out provision obligates them only to facilitate the repair of the

leak that caused the covered loss. The non-leaking pipe, it maintains, did not cause a covered

loss. Moreover, because the policy does not cover defective materials or construction, the nonleaking pipe is not itself a covered loss. (Defendant’s motion, p. 12). State Farm misconstrues

the operation of the tear-out provision. 

The tear-out provision is triggered by a covered loss. Once the provision is triggered,

State Farm must pay for the demolition and repair “necessary to repair the system or appliance.”

The “system” is the system that caused the covered loss. The system need not be a covered loss

itself. In fact, the system here is not a covered loss. The policy explicitly states, “[w]e do not

cover loss to the system or appliance from which the water or steam escaped . . .” (Defendant’s

motion, Exhibit A, p. 14, document page 9.) 

Moreover, the fact that the non-leaking pipe did not cause the covered loss is not

important. The tear-out provision applies to the non-leaking pipe if the non-leaking pipe is part

of the system that caused the covered loss. See, e.g., Keenan v. Wausau Lloyds Ins. Co., 1998

WL 652332, *3 (Tex.App 1998) (not designated for publication) (“[O]nce covered property

is damaged by steam or water from one of the listed sources, the insured is covered for the cost

of accessing the problem, without regard to the nature of the problem, which could include

defective construction.”); but see, Murray v. State Farm Fire & Casualty Co., 219 Cal.App.3d

58, *65 (Cal.App.4.Dist.1990) (“Because there was no covered loss under the policy, paragraph

1(e) did not obligate State Farm to pay the cost of tearing out the cement slab in order to repair

the damaged pipe.”). The homeowner’s policy covers the plaintiff’s claim as it is alleged in the

complaint.

RECOMMENDATION:

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The Magistrate Judge recommends the District Court, after its independent review of the

record, enter an order 

Denying the defendant’s motion to dismiss for failure to state a claim pursuant to Rule

12(b)(6), FED.R.CIV.P. [doc. #12]

Pursuant to 28 U.S.C. §636 (b), any party may serve and file written objections within

10 days of being served with a copy of this Report and Recommendation. If objections are not

timely filed, they may be deemed waived. 

The Clerk is directed to send a copy of this Report and Recommendation to the parties

or their counsel. 

DATED this 14th day of January, 2008.

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