A Pennsylvania insurer denied a water damage claim by calling it "vandalism" - even as its own policy language appeared to undercut the denial.
Sean and Erika Sherwood are suing Farmers' & Mechanics' Mutual Insurance Company in federal court, alleging the insurer manufactured a cause of loss to trigger a vacancy exclusion and avoid paying out on a legitimate claim. The suit, filed on February 11, 2026, in the United States District Court for the Middle District of Pennsylvania, brings claims for breach of contract and bad faith under 42 Pa.C.S.A. § 8371.
The Sherwoods purchased a property in Pleasant Gap, Centre County, Pennsylvania in October 2025 with plans to renovate it for rental or resale. They obtained a dwelling policy from Farmers' & Mechanics', and say the insurer was aware from day one that the property was under active construction.
On December 11, 2025, while the policy was in effect, a water supply line was found in the open position, releasing water and damaging the property. The Sherwoods reported the loss promptly and told the insurer they did not know whether the line had been left open by accident or on purpose.
Roughly three weeks later, the insurer issued a denial. According to the suit, Farmers' & Mechanics' classified the incident as "vandalism" and said the property had been "vacant and/or unoccupied" for more than 30 days before the loss — a basis for exclusion under the policy. The Sherwoods say neither they nor the insurer had any proof that the damage was intentionally caused, and that the vandalism label was applied without a reasonable basis, solely to deny their claim.
What makes the case particularly notable for insurance professionals is the policy language at the center of the dispute. The vandalism exclusion reads: "We do not pay for loss caused by vandals, burglary damage, or breakage of glass if the residence is vacant for more than 30 days in a row just before the loss. A residence being built is not vacant."
The Sherwoods argue the property was plainly "being built" when the loss occurred, given that renovation had been underway since they bought it. The policy does not define that phrase. Under Pennsylvania law, undefined terms in an insurance policy are given their ordinary meaning — and standard dictionary definitions of "build" include renovation and improvement, not just ground-up construction.
The suit alleges the insurer deliberately or recklessly ignored its own policy language, failed to conduct a fair investigation, and prioritized its financial interests over those of its policyholders.
The Sherwoods are seeking more than $150,000 in contract damages, along with punitive damages, attorney fees, and interest under their bad faith claim. No determination on the merits has been made, and the case remains in its early stages.
