A federal appeals court has ruled that insurance adjusters cannot override clear policy exclusions with on-site coverage assurances, even when homeowners rely on those statements to make costly repairs.
In a February 12 decision, the Fifth Circuit Court of Appeals sided with State Farm, holding that verbal representations by a field adjuster could not expand coverage beyond the unambiguous terms of a homeowners insurance policy under Mississippi law.
The ruling offers important guidance for insurers, adjusters, and policyholders on apparent authority, policy exclusions, and estoppel in property insurance claims.
Sewage Backup Sparks Coverage Dispute
The case began in May 2022, when Shirley and Ronald Cooper returned to their Madison, Mississippi home to find raw sewage backing up through the shower and tub drains. The flooding allegedly damaged:
- Two bedrooms
- Three bathrooms
- The kitchen
- Laundry room and pantry
- Hallways and garage
The homeowners contacted a plumber, hired a restoration company, and filed a claim with State Farm.
Their homeowners policy covered physical loss but excluded water or sewage entering from outside the residence premises plumbing system through sewers or drains. The Coopers had also purchased a Back-Up of Sewer or Drain endorsement, which provided limited coverage, capped at five percent of dwelling coverage, for off-premises sewage damage.
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Dispute Over Adjuster’s Statements
On May 9, State Farm sent field adjuster Adam Dilley to inspect the property. What he said during the inspection became the central issue in the lawsuit.
Both sides agreed that Dilley stated that certain areas, such as a closet, did not require replacement, while custom kitchen cabinets would need to be removed. However, the Coopers and their contractor claimed Dilley went further, allegedly:
- Walking from room to room, identifying approved repairs
- Telling them cabinets would be replaced
- Stating coverage applied because a pipe had cracked on their property
- Failing to mention any coverage limitations
Dilley, by contrast, characterized his comments as observations about damage, not final coverage determinations.
Relying on what they believed were coverage approvals, the Coopers proceeded with expensive repairs, including replacing custom kitchen cabinetry.
Investigation Reveals Off-Premises Sewage Source
Nine days later, State Farm sent a plumber to determine the source of the sewage. The plumber concluded the sewage originated from the city’s main sewer line—not from the Coopers’ property.
State Farm then paid under the limited sewer backup endorsement.
However, the claim grew more complicated. Another adjuster, Brian Lindsay, allegedly told the Coopers that full coverage would apply because a burst pipe was located on their property, only to reverse that position hours later. A formal denial letter followed.
Lawsuit: Apparent Authority and Estoppel
The Coopers sued, arguing:
- Dilley had apparent authority to make binding coverage decisions
- State Farm should be estopped from denying coverage after it relied on his statements
- They incurred substantial repair costs based on those assurances
State Farm responded that:
- The policy exclusion was clear and unambiguous
- Coverage depended on the source of the sewage, not the location of a pipe failure
- Verbal statements cannot modify written policy terms
Fifth Circuit: Clear Policy Language Controls
In a split decision, the Fifth Circuit ruled in favor of State Farm.
The majority emphasized a long-standing principle under Mississippi insurance law: policyholders cannot reasonably rely on agent statements that directly contradict clear policy language.
The court noted:
- Insureds have a duty to read their policies
- They are legally charged with knowledge of policy terms
- Unambiguous exclusions cannot be altered by verbal assurances
Even if the adjuster stated that coverage applied because a pipe cracked on the property, the exclusion turned on the source of the sewage, not the location of plumbing damage. As a result, those statements could not expand coverage.
Strong Dissent Highlights Adjuster Timing Risks
One judge dissented, arguing the homeowners should have been allowed to present their claims to a jury.
The dissent focused on timing and burden of proof:
- State Farm sent Dilley to evaluate coverage on May 9
- The sewage source was not investigated until May 18
- Under Mississippi law, the insurer bears the burden of proving an exclusion applies
The dissent also pointed out that Dilley had apparent authority, having been formally assigned to the claim and sent to the property after reviewing the policy.
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What the Ruling Means for Insurers and Adjusters
The decision provides protection for insurers when field adjusters make preliminary statements that later prove incorrect, as long as policy exclusions are clear and unambiguous.
However, the case also highlights risks for claims professionals:
- Adjusters must avoid definitive coverage statements before completing investigations
- Inconsistent internal communications can undermine credibility
- Mixed signals, such as approvals followed by reversals, can damage customer trust
While State Farm prevailed legally, the case underscores the delicate balance adjusters must maintain when guiding policyholders through complex property insurance claims.
Key Takeaways for Homeowners
For policyholders, the ruling reinforces several lessons:
- Always review your homeowners insurance policy and endorsements
- Understand coverage limits for sewer backup and water damage
- Obtain written confirmation of coverage decisions whenever possible
Ultimately, the Fifth Circuit’s decision confirms that clear policy exclusions control, even when on-site assurances suggest otherwise.
