Insurance contract contradicts itself regarding if damage is covered or not. How is this handled and who's in the right?

Question

My main water line within my property lines broke. I filed a claim with my home warranty to cover the damages. They state that the damage isn't covered as it's not within their Covered Items (this is correct). However, their contract also states that leaks within the Covered Home are covered and they define Covered Home as the "real property located at the Covered Home Address". California Civil Code section 658 defines real property as "land and the things affixed to land". This definition is nearly identical to the California Dept of Real Estate's definition of "land and anything affixed and regarded as permanent part of the land."  
 
This creates a contradiction within the contract. My question is how is the contract enforced given this contradiction and how does that apply or change the outcome of their ruling that the damages are not covered? 
 
Thank you so much for any assistance you can provide!

Neil Anapol · Answer

I would not attempt to interpret the contract without seeing the contract.  However, home warranty contracts are not considered to be insurance.  Therefore, there is no such thing as an action for bad faith against a home warranty company.  At most, you could sue for the cost of the repair. 
 
It is fairly likely that the damage would be covered by your homeowners insurance policy, particularly if the damage occurred suddenly as a result of a burst pipe.

Tim Akpinar · Answer

I agree with the good responses of my colleagues. I'd add that as a general premise of contract drafting or insurance policy underwriting, if there are ambiguities or contradictions due to being poorly written, courts nationwide will tend to interpret the deficiencies against the party(s) who created the document. Good luck

James L. Arrasmith · Answer

When an insurance contract contradicts itself, California law often favors the interpretation that benefits the insured, especially if the policy language is ambiguous. The principle of "contra proferentem" means that any unclear or conflicting terms are interpreted against the party that drafted the contract—in this case, the home warranty company. Since they created the contract, the onus is on them to provide clear language. 
 
In your situation, one part of the contract states that damage within the "Covered Home" is covered, while another part excludes it. The definition of "real property" under California Civil Code, which includes land and anything permanently attached to it, might mean the water line falls within the scope of "Covered Home." This inconsistency could work in your favor if you argue that the damage to the water line is part of the "Covered Home" as defined in the contract. 
 
It may be beneficial to gather all relevant documents, point out this contradiction clearly, and present your case to the warranty provider. If they refuse to cover the damage despite the ambiguity, you might consider pursuing legal advice to explore your options for challenging their decision. Often, just the threat of legal action is enough to motivate a company to reconsider its position.

Q: Insurance contract contradicts itself regarding if damage is covered or not. How is this handled and who's in the right?