When It Rains It Pours – Leaving Surface Water Behind

Rain, rain may go away … only to cause coverage headaches another day. Losses following rainstorms may implicate any number of exclusions, including those for seepage, leakage and rot. In a number of coverage cases over the past several years, one highlighted category of water-based exclusions has been the exclusion for losses caused by surface water. This article provides an overview of the debate between states regarding when surface water exclusions may apply.

In a recent Ohio case, Oak Hill Inv. IV LLC v. State Farm Fire & Casualty Co., an insured office building owner sought coverage under a property insurance policy for damage that occurred during a rainstorm.¹ During the storm, water levels in a roof drain clogged by windblown debris began to rise, and water eventually entered the building through an air conditioning unit.² The water coursed through the building’s HVAC system, causing damage to the structure’s interior.³

Though the policy contained a limitation against losses to the interior of any building “caused by rain, snow, sleet, ice, sand or dust, whether driven by wind or not,” it further stated that the exclusion would not apply if the building first sustained damage by a covered cause of loss.⁴ The court observed that the rainwater had entered the building through an undamaged air conditioner as opposed to a damaged drain. Because a covered cause of loss had not preceded the rainwater’s entry into the building, the court held that the exclusion applied and barred recovery.⁵

Next, the court examined a policy exclusion for losses caused by surface water. The insured sought coverage under the theory that water which pools on an artificial surface such as a roof does not constitute “surface water” for the purposes of the exclusion.⁶ In opposition, the insurer argued that the rainwater which had flowed into the building should be considered surface water, regardless of whether it had initially pooled on the roof or landed in the dirt.⁷ The court rejected the insured’s narrow definition, observing that the water in question had “derived from falling rains,” and that “the word ‘ground’ [included] the roof on which a man could walk or an object could rest.” Accordingly, the court granted the insurer’s motion for summary judgment, finding that no coverage existed for the insured’s claims.⁸

In reaching its decision, the court in Oak Hill observed that there is a split among jurisdictions regarding the definition of “surface water,” with a minority of courts holding that water pooling on an artificial surface is not “surface water.” For instance, the 11th Circuit has held that rainwater which entered a building lobby from an elevated deck did not fall within any common definitions of surface waters and would not be interpreted as such under the relevant insurance policy.⁹

Like the Oak Hill court, however, the majority of jurisdictions have maintained that surface water includes that which lands upon an artificial surface. For example, the Supreme Judicial Court of Massachusetts has observed that water which traveled from a patio to the foundation of a home did not change its fundamental character as surface water.¹⁰ Similarly, the Court of Appeals of Colorado opined that rain water which came to rest on the roof of an insured premises qualified as surface water for the purpose of interpreting a policy exclusion.¹¹

In sum, when determining whether a surface water exclusion may apply, one should consider the effect that the pooling of water on an artificial surface might have on coverage in the relevant jurisdiction. While we can’t prevent the rain, being mindful of this potential issue might avoid a coverage analysis headache or two!