Legal Question in Insurance Law in California

Re: What is legally a commercial water heater

The insurer is wrong. The plain language you quoted requires a modification to have occurred. There was none, so the exclusion is not applicable.

Was this part of the house when you bought it? And "typically" used for commercial purposes is not synonymous with "exclusively."

The whole warranty agreement would have to be read to make sure, but I suggest you write to a supervisor and demand coverage.

By the way, what happened? Did the unit fail? Was it improperly installed - did it leak damaging other property, or??? That is why the exact coverage of the warranty policy must be reviewed - coverage and exclusions therefrom must be viewed in the context of the actual loss, never in the abstract.

Re: What is legally a commercial water heater

Your home warranty insurers are all wet. If their policy language excludes coverage for "commercial systems or equipment modified for domestic use", that exclusion does not reasonably apply to a water heater installed in your house without modification, that complies with code, just because that heater is typically used in commercial applications. If they went to court with that argument (and you had a good attorney), they would lose. I'll bet their attorneys haven't seen this claim; when they do, they will likely advise the claims department to back down. They may not, though -- I've seen some pretty stupid decisions by insurance company attorneys.

Basically, the rules for interpreting a provision in an insurance policy are: (1) if the language is perfectly clear, then it means what it says; (2) if the language is not perfectly clear, the court looks to your reasonable expectations: if you reasonably expected something to be covered, then it is covered; (3) if the language is ambiguous, you get the benefit of the doubt because they wrote it.

Here, the language is not perfectly clear, so the judge would look to your reasonable expectation. I think at least nine times out of ten, the judge would find you reasonably expected the policy would cover your water heater.

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