Posted on: April 23rd, 2018

In November, 2014, a squirrel entered an electrical substation owned by the City of West Liberty, Iowa and, after climbing on equipment, caused a completed circuit and thereafter electrical arc resulted in substantial damage to the City’s electrical substation.  Following the damage, the City submitted a claim to Employers Mutual Casualty Company (EMC).  EMC denied the City’s claim, citing the insurance policy’s “Electrical Currents” exclusion.  The City filed suit, seeking declaration that its damage was covered under the policy.

The insurance policy at issue was an all-risks policy, covering any risk of direct physical loss or damage to the covered property unless specifically excluded by the policy.  The parties did not dispute that the City suffered a direct physical loss to covered property at a covered location during the policy period.

EMC argued that the insurance policy specifically and clearly stated EMC would not pay for a loss caused by arcing.  The City contends, however, a fortuitous event—the squirrel coming into contact simultaneously with the energized cable and grounded frame—immediately set in motion the arcing event that caused the City’s property damage, such event was the efficient proximate cause of the City’s loss, and the loss is therefore covered, not excluded, under the policy.

The Iowa Court of Appeals determined that this loss was caused by arcing, finding that no express exception to the policy’s exclusion for arcing applied.  The Court determined that whether or not the squirrel completed the electrical circuit, the damages were still caused by the arcing.  As such, the Iowa Supreme Court found in favor of EMC.

City of W. Liberty v. Employers Mut. Cas. Co., No. 16-1972, 2018 WL 1182764 (Iowa Ct. App. Mar. 7, 2018)

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