Excelsior Westbrook III: Tenth Circuit Affirms That Anti-Concurrent-Cause Clauses Override “Specified Cause-of-Loss” Exceptions and That Sub-Surface Water Exclusions Bar Coverage for Water Escaping Broken Underground Pipes

Introduction

In Auto-Owners Insurance Co. v. Excelsior Westbrook III, LLC, the United States Court of Appeals for the Tenth Circuit addressed whether a commercial property policy covered catastrophic water damage caused by a burst fire-suppression pipe embedded beneath the concrete floor of the insured building.

The parties sparred over two key provisions:

A broad “Water Exclusion” that bars coverage for losses caused by “water under the ground surface pressing on, flowing or seeping through foundations, walls, floors, or paved surfaces,” reinforced by an anti-concurrent-cause (ACC) clause.
A separate “Wear-and-Tear or Rust Exclusion,” which itself contains an exception for “specified causes of loss,” including “water damage” from the accidental leakage of a plumbing system.

Excelsior argued that the “specified cause-of-loss” exception restored coverage; Auto-Owners countered that the ACC-reinforced Water Exclusion controlled. The district court sided with the insurer, and the Tenth Circuit has now affirmed, clarifying how Kansas courts (and courts within the Tenth Circuit) should reconcile overlapping exclusions, exceptions, and ACC clauses.

Summary of the Judgment

The Tenth Circuit held:

The policy’s Water Exclusion unambiguously applies to water released from an underground pipe, regardless of whether the water’s origin is natural or man-made.
The ACC language (“regardless of any other cause or event that contributes concurrently or in any sequence to the loss”) means that once the Water Exclusion is triggered, coverage is barred even if a covered peril (e.g., “wear and tear” leading to “water damage”) also contributes to the loss.
An exception to a different exclusion (here, the “specified cause-of-loss” exception to the Wear-and-Tear or Rust Exclusion) cannot create coverage where a separate exclusion (the Water Exclusion) already withdraws it.
No ambiguity arises merely because the policy elsewhere promises to pay for “water damage” under certain circumstances; Kansas law construes insurance contracts as a whole, and clear exclusions control.
The district court’s grant of summary judgment for Auto-Owners therefore stands; Excelsior takes nothing on its breach-of-contract and unfair-trade-practices counterclaims.

Analysis

Precedents Cited and Their Influence

Krug v. Millers’ Mutual Insurance Ass’n, 495 P.2d 949 (Kan. 1972) – Kansas Supreme Court enforced a similar sub-surface water exclusion where a supply line leaked underground. The Tenth Circuit relied heavily on Krug to reject Excelsior’s argument that “water below the surface” refers only to naturally occurring groundwater.
Catholic Diocese of Dodge City v. Raymer, 840 P.2d 456 (Kan. 1992) and Marshall v. Kansas Medical Mutual, 73 P.3d 120 (Kan. 2003) – reiterated Kansas rules on policy construction and ambiguity, cited for the interpretive framework.
Leonard v. Nationwide, 499 F.3d 419 (5th Cir. 2007) and other ACC clause cases (e.g., Midwest Family Mut. v. Hari Om Rudra Hotel, 416 F. Supp. 3d 853) – referenced to explain the function and judicial acceptance of ACC wording.
Several district-court and state cases (Secura Ins. v. 33 Allenton Venture, Wisteria Props. v. Ohio Sec.) – cited to show national consensus that an exception to one exclusion does not override a separate exclusion.

Legal Reasoning

No Conflict Ambiguity.
Excelsior tried to frame a clash between (a) the Water Exclusion and (b) the “water damage” language within the specified-cause-of-loss exception. The court reasoned that these provisions live in different structural tiers: one is a standalone exclusion; the other is merely an exception to a different exclusion. Because they operate independently, no contradiction arises, and there is nothing for the contra-proferentem rule to resolve.
Plain Meaning of “Water under the Ground Surface.”
Looking to Krug, ordinary usage, and the absence of limiting qualifiers (“natural” water, “groundwater,” etc.), the court concluded that water that escaped a buried pipe still qualifies as “water under the ground surface.” The pipe’s proximity to footings or foundation was irrelevant.
Effect of the ACC Clause.
Even if wear-and-tear or rust (a covered peril via the specified-cause-of-loss exception) contributed to the leak, the ACC wording expressly bars coverage whenever any excluded cause (here, subterranean water) contributes in any sequence. Therefore, the presence of a covered cause does not revive coverage.
Burden of Proof Allocation.
Excelsior bore the initial burden to show that its loss fell within the basic grant of coverage. Auto-Owners then had to invoke a valid exclusion. Once the Water Exclusion plainly applied, the burden rebound to Excelsior to invoke an exception to that same exclusion. It could not do so; its reliance on an exception attached to a different exclusion was legally misplaced.

Impact of the Judgment

The decision cements, at least within the Tenth Circuit, two intertwined propositions:

Sub-surface water exclusions apply to man-made as well as natural water sources so long as the water emanates below grade and subsequently penetrates the structure.
When a policy includes an ACC clause, insureds cannot circumvent an exclusion by pointing to a covered peril that also played a role; courts will not splice coverage back in through exceptions attached to other exclusions.

Future litigants in Kansas, Oklahoma, Colorado, New Mexico, Utah, and Wyoming can expect insurers to cite this order aggressively in water-loss disputes, especially those involving burst supply lines, sprinkler systems, or irrigation pipes. Moreover, policy drafters may lean more heavily on ACC clauses, knowing that the Tenth Circuit views them as an “enforceable way to foreclose” re-characterization arguments.

Complex Concepts Simplified

Sub-Surface Water Exclusion. A clause eliminating coverage for damage caused by water that is below the ground and then makes its way into the structure (through walls, floors, foundations, etc.). It applies whether the water is rain-induced groundwater or a burst pipe buried in the soil.
Anti-Concurrent-Cause (ACC) Clause. Language stating that if an excluded peril contributes to the loss in any way—even alongside a covered peril—the entire loss is excluded. Think of it as an “excluded peril poison pill.”
Specified Cause-of-Loss Exception. A carve-back that restores coverage for certain perils (fire, lightning, water damage, etc.) but only within the exclusion that mentions it. It is not a free-standing grant of coverage.
Exception vs. Exclusion. An exclusion removes coverage; an exception to an exclusion reinstates coverage only for that exclusion. Exceptions do not override other separate exclusions.
Burden Shifting in Coverage Litigation. The insured must show the loss fits the coverage grant; the insurer must prove an exclusion; the insured can then avoid the exclusion by proving an applicable exception.

Conclusion

Auto-Owners v. Excelsior Westbrook III offers a lucid primer on how modern commercial property policies interlock exclusions, exceptions, and ACC clauses. The court’s step-by-step approach underscores that:

Courts interpret policies as integrated wholes; “will pay” language nestled inside an exclusion does not magically override unrelated exclusions.
Water escaping an underground pipe is still “water under the ground surface,” so the typical sub-surface water exclusion applies.
ACC clauses are potent. Once an excluded peril contributes to the loss, the quest for coverage is, as a practical matter, over—unless the insured can point to an explicit exception within that same exclusion.
Kansas precedent (Krug) remains authoritative on subterranean water, and the Tenth Circuit has now extended its application in the context of sophisticated commercial policies.

Practitioners should therefore scrutinize the hierarchy of exclusions, exceptions, and ACC language before litigating water-damage claims and should advise clients that policy wording—and its placement—can be outcome-determinative.