When it Rains it Floods: California Rainstorms and Flood Insurance

Until very recently, the scarcity of water and the decline in oil prices in California prompted the joke that oil was being used as fracking fluid to get water out of the ground. In the last week, however, so much rain has fallen there is talk of “drought-busting” and flash floods and landslide warnings have been issued throughout the state—a rare warning in the southern part of the state. Many homeowners and small business owners are finding out the hard way after a weekend of major rainstorms—including over 5” in a day in suburban Los Angeles – that standard insurance policies typically do not cover flood damage.

Most residential and small business policies include a provision similar to the ISO flood exclusion which precludes coverage for flood:

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.

I.     Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge).

Flood insurance is available through the National Flood Insurance Program (NFIP) which is administered by the Federal Emergency Management Agency (FEMA).  Coverage is limited to $250,000 for homeowners and $500,000 for commercial property. The policies do not take effect for 30 days after purchase so property owners without coverage in place now will not be able to get coverage for damage from the storms expected yet in February.

California policyholders who submit claims for damages caused in whole or in part by flood may argue the flood exclusion is ambiguous and therefore should be construed in favor of coverage. Policyholders may also argue other causes, such as negligent design of flood control structures or improper drainage on adjacent property, caused the inundation of water. California is one of just four states that will not enforce an “Anti-Concurrent Cause” provision. Rather, the “efficient proximate cause” standard is used. Issues may also arise when an insurer provides some flood coverage subject to flood-specific limits or deductibles.

An issue that likely will arise is when is a flood a flood? Policy holders in water damage cases often will argue that the term is ambiguous and, therefore, should be construed in favor of coverage. FEMA and California courts have addressed the issue in circumstances similar to the expected claims from recent storms.

The NFIP program summary defines flood in simple terms as “an excess of water on land that is normally dry.” The more detailed description includes an overflow of inland or tidal waters; unusual and rapid accumulation or runoff of surface waters from any source; and mudflow. The NFIP policy form excludes landslides, slope failures, or saturated soil moving down a slope since such hazards are included within the definition of excluded earth movement. Earth movement generally is also excluded from standard policies in California.

Courts in other states define flood to be an overflow of a body of water causing a large amount of water to cover an area that is usually dry or “water which inundates an area of the surface of the earth where it ordinarily would not be expected to be.” Ordinary dictionary definitions define flood as an overflowing or inundation of water over usually dry land. See American Heritage Dictionary of the English Language 674 (4th ed. 2000) (“[a]n overflowing of water onto land that is normally dry”); Merriam-Webster’s Collegiate Dictionary 480 (11th ed. 2003) (“a rising and overflowing of a body of water esp. onto normally dry land”); Black Law’s Dictionary 640 (6th ed. 1990) (“[a]n inundation of water over land not usually covered by it”). Quoted in Northrup Grumman Corporation v. Factory Mutual Insurance Company, 538 F.3d 1090 (9th Cir. 2008)

In an unpublished decision, the California Court of Appeal for the 4th Appellate District recently reviewed a claim for coverage under a homeowners policy and held that flood within the meaning of an exclusion precludes coverage for loss caused by heavy rains. The homeowners in Horvath v. State Farm, No. G048457,  2014 Cal. App. Unpub. Lexis 4706 (Ct. App. June 30, 2014),sustained significant damage to their home when heavy rainstorms overwhelmed the storm drains on their street. The overwhelmed storm drains caused a “river of water” to flow down the street, eventually inundating and significantly damaging Plaintiffs’ home. The policy did not define flood, but the court, citing the FEMA definition as well as the plain meaning of the word “flood,” held the exclusion applied.

The court held “flood” in its plain meaning encompasses water from a “flash flood,” defined as a “local flood of great volume in short duration generally resulting from heavy rainfall in the immediate vicinity.” The Court also noted “flood” is not the surface water itself, but is the runoff of surface water within the NFIP definition of flood.

In rejecting the policyholders’ argument that flood cannot be caused simply by excess rainfall, but only by an existing body of water exceeding its bounds, the court stated simply, “That would be news to Noah.” Id., (citing Genesis 7:17).

More rain is on the way to California and with it, a continuing threat of flooding and mudslides. The drought relief is welcome, but the damage from the floods, sinkholes, mudslides, etc. show it all comes with a price. Seems it does rain in Southern California and when it does, it pours – and floods.