Background
Big Sandy Regional Detention Center, a jail facility in Paintsville, Kentucky constructed in 1987, suffered water damage during a severe snow and rain event in early 2015. Water infiltrated the building through a damaged roof membrane, which the insurer KALF promptly covered and repaired. Subsequently, Big Sandy observed cracking in the jail’s walls, floors, and ceilings and attributed this damage to subsurface soil loss caused by water washing beneath the building’s foundation.
Big Sandy submitted a separate claim for this structural damage, but KALF denied coverage under exclusions in the property insurance policy. In 2018, Big Sandy filed a declaratory judgment action in Johnson Circuit Court seeking coverage, which was transferred to Franklin Circuit Court pursuant to a forum-selection clause. Both parties moved for summary judgment on the liability question. The Franklin Circuit Court granted KALF’s motion and dismissed Big Sandy’s action on August 12, 2024.
The Court’s Holding
The Kentucky Court of Appeals affirmed, holding that the insurance policy’s exclusions unambiguously barred coverage. The policy excluded losses caused “directly or indirectly” by settling, cracking, and defective construction, with the explicit provision that such exclusions apply “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” The court found no genuine issue of material fact warranting trial.
Although Big Sandy’s expert argued that water from the roof breach washed away silt and clay beneath the building—causing voids and triggering settlement—while KALF’s expert attributed the damage to long-term settlement from construction deficiencies, both experts ultimately agreed that settlement and cracking were part of the causal chain producing the claimed damage. The court rejected Big Sandy’s argument that causation principles from tort law should apply to the insurance contract, emphasizing that “this case does not arise in tort. It is a contract dispute governed by the Policy’s terms.” Under the policy’s unambiguous language, the exclusions applied regardless of whether the storm accelerated preexisting settlement conditions.
Key Takeaways
- Insurance policies are enforced according to their plain language terms, and ambiguity-against-the-drafter rules do not apply to unambiguous exclusions.
- In insurance contract interpretation, causation differs from tort law: an excluded cause triggers exclusions even if multiple causes contributed concurrently or sequentially to the loss.
- Broad exclusionary language using “directly or indirectly” encompasses both primary and contributing causes in the causal chain, even when non-excluded causes also played a role.
- Where expert testimony does not materially disagree on the ultimate mechanism of damage (here, settlement), summary judgment is appropriate on coverage questions.
Why It Matters
This decision clarifies Kentucky precedent on insurance policy interpretation and the enforceability of exclusions. For insureds, it demonstrates that carefully drafted policy exclusions using “directly or indirectly” language will be enforced against them, even when multiple causes contribute to damage and some causes may fall outside the exclusion. For insurers, it confirms that exclusions need not identify a single proximate cause—any excluded condition within the causal chain triggers the exclusion. This principle has significant implications for property insurance disputes involving environmental or structural damage where causation is multifactorial.
The decision also reinforces that courts will not import tort-law causation principles into insurance contracts when the parties have used unambiguous contractual language. Policyholders seeking coverage therefore cannot rely on arguments that their loss had multiple causes or that a non-excluded cause was a “substantial factor” in producing the damage when the policy explicitly covers losses only when no excluded cause contributed to the loss.