A typical flood or water damage exclusion found in homeowners’ and commercial property policies using Insurance Services Office, Inc. (ISO) policy language provides as follows:
We will not pay for loss or damage caused directly or indirectly by any of the following.
Such loss or damage is excluded regardless of any other cause or event that contributes
concurrently or in any sequence to the loss.
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water,
or their spray, all whether driven by wind or not;
(2) Water which backs up through sewers or drains or which overflows from a sump; or
(3) Water below the surface of the ground, including water which exerts pressure
on or seeps or leaks through a building, sidewalk, driveway, foundation,
swimming pool or other structure.
Direct loss by fire, explosion or theft resulting from water damage is covered.
Flood is typically defined as an inundation by water of ordinarily dry land. Disputes have sometimes arisen regarding whether a flood must be an exclusively “natural” event or whether a failure of a levee, dam or dike or some other “man-made” factor can also cause a “flood” within the meaning of this policy language. One of the largest floods in our nation’s history, the Johnstown Flood of 1889, resulted from a dam failure. After Hurricane Katrina, there was extensive litigation over whether the flood exclusion would apply to the damage to homes and businesses in greater New Orleans due to the failure of levees and other flood control systems during the course of that natural disaster. Robinson & Cole’s Insurance and Reinsurance Group was heavily involved in this litigation on behalf of the insurance industry. The U.S. Court of Appeals for the Fifth Circuit and the Louisiana Supreme Court ultimately ruled that the flood exclusion was applicable. See In re Katrina Canal Breaches Litigation, 495 F.3d 191, 214 (5th Cir. 2007); Sher v. Lafayette Ins. Co., 988 So. 2d 186 (La. 2008). To attempt to avoid the possibility of this argument being made by policyholders in the future, some insurers have implemented policy language that further specifies that the exclusion applies whether the event is caused by human or natural forces.
The term “surface water” is often defined as water from rain or melting snow that flows or accumulates on the surface of the ground and has not yet merged into a large body of water. Some disputes over the application of this exclusion have focused on whether water flowing or sitting on a man-made surface such as pavement, a balcony or a roof constitutes surface water. See Smith v. Union Auto. Indem. Co., 752 N.E.2d 1261 (Ill. App. Ct. 2001); Cochran v. Travelers Ins. Co., 606 So. 2d 22 (La. Ct. App. 1991).
Subpart (2) of the exclusion, which applies to backups through sewers or drains, is sometimes overridden by an endorsement providing limited coverage, typically with a small sublimit, for such losses. Coverage disputes concerning this portion of the exclusion sometimes focus on whether some other factor (e.g., an unusually heavy rainfall or a blockage) was the cause of the loss, a question that should be resolved by the anti-concurrent causation clause in jurisdictions that enforce it. Coverage disputes also sometimes focus on whether the exclusion applies to an off-premises backup that leads to a loss on the insured premises.
Subpart (3) of the exclusion, which applies to water under the surface of the ground, encompasses, among other losses, the entry of groundwater into basements due to a high water table, a common occurrence in some buildings which have sump pumps to address this problem. Coverage disputes involving this part of the exclusion sometimes focus on whether it applies to underground water that emanates from a broken water main or pipe, or applies only to naturally-occurring groundwater.
The flood or water damage exclusion is one of a small number of exclusions in property insurance policies that typically contain an anti-concurrent causation clause. In the exclusion quoted above, the anti-concurrent causation clause specifies that “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” This clause should exclude losses regardless of whether the water event was caused by or contributed to by some other covered cause of loss. The anti-concurrent causation clause also may apply, in some circumstances, where there is indistinguishable damage caused by an excluded form of water together with other causes of loss. The application of the anti-concurrent causation clause to losses caused by wind and water was the subject of extensive litigation following Hurricane Katrina. The appellate courts held that damage caused by storm surge (water pushed ashore by hurricane winds) was excluded regardless of whether wind (a covered cause of loss) contributed to causing the storm surge. Courts took different approaches, however, with respect to the issue of damage that may have been caused by a combination of hurricane winds and floodwaters where it may have been difficult to determine whether the wind or the water was the first to impact the property. See, e.g., Corban v. United Services Auto. Ass’n, 20 So. 3d 601 (Miss. 2009); Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007); Tuepker v. State Farm Fire & Cas. Co., 507 F. 3d 346 (5th Cir. 2007); Arctic Slope Regional Corp. v. Affiliated FM Ins. Co., 564 F. 3d 707 (5th Cir. 2009).
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 … Continue Reading
An exclusion in a homeowner’s policy for loss resulting from “water . . . below the surface of the ground” is not limited to naturally occurring water, according to a recent decision of the Eighth Circuit Court of Appeals in Bull v. Nationwide Mut. Fire Ins. Co., 2016 U.S. App. LEXIS 9703 (8th Cir. May … Continue Reading
On April 6, 2016, New York’s Second Department issued a decision in Provencal, LLC v. Tower Insurance Company of New York, 2016 N.Y. App. LEXIS 2529 (Apr. 6, 2016) holding that an insurer does not waive application of an exclusion in an insurance policy if the insurer omits the language of the exclusion in the declination … Continue Reading
In Fidelity Co-Operative Bank v. Nova Cas. Co., 726 F.3d 31 (1st Cir. 2013), the First Circuit addressed what can happen when a variety of inter-related perils converge to create one loss under a policy with numerous amendatory endorsements that differ substantially from the typical commercial property policy. The insured in this case suffered extensive … Continue Reading
As insurance companies begin the process of adjusting Hurricane Isaac insurance claims, we thought it would be helpful to highlight briefly on our blog some of the key case law from Hurricane Katrina, and some key Louisiana statutes regarding insurance claim adjustment: Water Damage Exclusions: The Louisiana Supreme Court ruled in Sher v. Lafayette Insurance … Continue Reading
As mentioned previously, there appears to be an influx of court cases arising from situations where heavy rainfall affects drain and sewer systems, resulting in property damage. The Rhode Island Supreme Court was recently tasked with handling such a case, reaching the same conclusion as the Massachusetts Supreme Judicial Court did in Boazova and Surabian … Continue Reading