The “Water Damage” exclusion incorporated in many property insurance policies is the subject of much litigation, including the scope and applicability of the “surface water” exclusion to various water damage scenarios. The New York Appellate Division, Fourth Department recently interpreted the application of the “surface water” exclusion where the source of water was not from natural precipitation. This is the second New York decision to interpret the meaning of “surface water” in the context of a property insurance policy.

In Smith v. Safeco Ins. Co. of Am., 2018 N.Y. App. Div. LEXIS 1925 (N.Y. App. Div., 4th Dep’t March 23, 2018), the Plaintiffs commenced an action against their homeowner’s insurer, Safeco, seeking to recover insurance proceeds after their home was damaged by water resulting from a water main break on their street. It was undisputed that water flowed over the ground before reaching the insureds’ home. The insurance policy contained a “Water Damage” exclusion, which excluded losses “caused directly or indirectly” by “surface water.” The “Water Damage” exclusion was subject to a typical anti-concurrent causation preamble, specifying that such losses are “excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” The exclusion further specified that “[t]his exclusion applies regardless of whether the water damage is caused by or resulting from human or animal forces or any act of nature.” Safeco denied coverage relying on the “surface water” provision of the Water Damage exclusion, and the plaintiffs filed suit. The trial court rejected plaintiffs’ argument that the exclusion only applied to naturally occurring water, and granted Safeco’s cross-motion for summary judgment.

On appeal, the Fourth Department reversed and concluded that the Plaintiffs established, as a matter of law, that their home was not damaged by “surface water.” In doing so, the Court applied what it characterized as the “plain and ordinary meaning” of the term “surface water”, which it defined as “the accumulation of natural precipitation on the land and its passage thereafter over the land until it either evaporates, is absorbed by the land or reaches stream channels.” (emphasis added) This definition is quoted from a more than fifty-year old negligence case filed against the State of New York by a landowner claiming that the construction of a bridge caused water damage to its property. Drogen Wholesale Electric Supply, Inc. v. State, 27 A.D.2d 763 (N.Y. App. Div. 3d Dep’t 1967).  In Drogen, the definition of “surface water” was discussed because the State’s defense turned on an alleged distinction between flood water damage and surface water damage to riparian land owners. On the basis of the Drogen court’s definition of “surface water,” the Court concluded that the water that entered the Plaintiffs’ residence as a result of the water main break was not “surface water” and, therefore, Safeco erroneously denied coverage under the water damage exclusion.

In reaching this conclusion, the Court also rejected Safeco’s argument that the water damage exclusion applied “whether the water damage [was] caused by or result[ed] from human or animal forces or any act of nature,” clarified that “surface water” included non-natural sources. The Court concluded that the referenced language followed the entire list of events for which the Water Damage exclusion applied, which included both acts of nature and human forces, and did not impact or alter the definition of “surface water.” This conclusion is at odds with a recent Texas appellate court decision, which determined that this same language specified that “the [surface water] exclusion is not limited to naturally-occurring precipitation.” Tsai v. Liberty Mut. Ins. Co., 2015 Tex. App. LEXIS 11147, *17 (Ct. App. Tex. 1st Dist. Oct 29, 2015).

Smith is the second published decision in New York that analyzes the definition of “surface water” in the insurance context. The only other decision is another Fourth Department case, which also relies on Drogen for the definition of “surface water.” Casey v. General Acci. Ins. Co., 178 A.D.2d 1001 (N.Y. App. Div. 4th Dep’t 1991). We will provide an update on Smith if further review by the Court of Appeals is sought and granted.