McGrath, et al. v. American Family Mutual Ins. Co.
In McGrath, et al. v. American Family Mutual Ins. Co. (N.D. IL, 07 C 1519) the court has delivered some poignant remarks concerning both the standard under Daubert for expert engineer testimony as well as provided some issues to think about regarding the "latent defect" and "construction design defect" exclusions issued under all-risk insurance policies.
The plaintiffs submitted a claim to their insurance company for water damage inside their home. The insurance company denied coverage based on two exclusions in the policy, one for construction or design defects and one for latent or inherent defects. The plaintiffs sued, and the insurance company hired an engineer to provide an opinion regarding the cause of the water damage. Motions for summary judgment and for judgment under Federal Rule 56(d) limiting the issue of liability were cross-filed.
The engineer had found that external water or moisture from humidity, ice, snow and rain had penetrated the exterior brick walls of the plaintiffs' home due to construction or design defects.
The plaintiffs moved to have portions of the testimony of the defense expert stricken by questioning his methodology. Plaintiffs asserted that the expert needed to perform in depth testing of the humidity levels to provide precise calculations regarding his opinions. The court ruled that the pictures examined by the expert provided enough information for someone with his experience to reach an acceptable opinion regarding the intrusion points of the moisture and that in-depth analysis was not necessary.
The court then went on to interpret the policy exclusions for construction and design defects and latent defects against American Family and in favor of the plaintiffs. In assessing the nature of the water damage, the court found that because the exclusion failed to include language addressing exclusions for losses resulting from ancillary damages caused by a design or construction defect, that the exclusion only applied to the actual defect and not to the water damage to other portions of the home caused by the defect. In assessing the latent defect exclusion, the court found that the latent defect exclusion applied to "a hidden defect other than a construction or design defect." The court analogized latent defects to hidden defects that are unrelated to construction or design such as finding lead paint under layers of previous coats.
Given its conclusions that no exception applied, the found that liability under the policy was established and that the only issues for trial were the amount of damages.
