Broken Water Main Damage: Flood or Not Flood Under Homeowner’s Insurance Policy?

Paul LaSalle | Property Insurance Coverage Law Blog | May 9, 2019

In a recent court opinion,1 the New Jersey Appellate Division interpreted a homeowner’s insurance policy’s water damage exclusion and determined whether damage from a broken municipal water main under a public street was covered under the policy. In that case, a homeowner brought an action against his insurer for breach of contract after the insurer disclaimed coverage on the basis that damage to his real and personal property resulting from a broken water main was excluded under the policy as flood, surface and ground water intrusion.

The homeowner’s insurance policy at issue in that case provided all risk coverage for damage to the dwelling and other structures and named peril coverage for damage to personal property. The insurance policy’s form excluded losses caused by water damage, which was modified in reach by a “Water Back-Up and Sump Pump Discharge or Overflow” endorsement. The water damage exclusion included: “(1) Flood, surface water, waves …[the] overflow of any body of water … including storm surge” (Exclusion 1); and “(3) Water below the surface of the ground, including water which exerts pressure on, or seeps, leaks or flows through a building … or other structure” (Exclusion 3).

The insurance company claimed that Exclusion 1 applied because the water that caused the damage to the homeowner’s home was a “flood or surface water.” The insurance company also claimed that Exclusion 3 applied because below-ground water “exerted pressure on, … seeped, leaked or flowed through a building, sidewalk … driveway…or other structure.” The court disagreed.

The court initially noted that the insurance policy did not exclude all losses resulting from water, and that unless the kind of water that caused the damage to the homeowner’s dwelling satisfied one of the identified forms of water, the water damage exclusion did not apply. With respect to “flood” as defined in Exclusion 1, the court ruled that flood does not clearly encompass water released from a broken water main. In ruling so, the court noted that the insurance company’s Notice Regarding Flood Damage Coverage (which the insurance company invoked to define flood because the term was undefined by the water exclusion) provided that a “flood” “is a general and temporary condition of partial or complete inundation of normally dry areas.” Therefore, even if it was assumed that the homeowner’s driveway, a “normally dry land area,” was partially or completely inundated because of the broken water main, and that inundation caused damage to the dwelling, the condition was not a “general” one, i.e., a water condition that was “not limited in scope, area, or application.” In other words, in order for the water condition to be considered a flood, it must affect a wide area and precludes the isolated water condition that specifically damaged the homeowner’s property.

The court commented that its definition of a flood was consistent with the view of other jurisdictions that have found that a flood “connotes a great inundation or deluge affecting a broad area, and not the kind of localized water damage that a water-main break causes.” The court further provided this line of thought is clearly connected to the position that “the principal defining characteristic of a flood is not that it is a natural phenomenon – it may arise from human actions – but that it involves the overflow of a body of water”—and a water main is not a body of water.

With respect to the insurance company’s claim that the broken water main damage was excluded as “surface water” in Exclusion 1, the court concluded that the term “surface water” was ambiguous.2 Nevertheless, the court found the water main break’s water did not qualify as surface water under both definitions of the term. Therefore, water from a water main break is not, unambiguously, surface water.

Moreover, the court rejected the insurance company’s claim that Exclusion 3 prevented the homeowner’s recovery because the water that damaged the home was no longer “below the surface of the ground” when it reached the property; it was above ground. The court found that by its plain meaning, Exclusion 3 does not address damage caused by above-ground water. Furthermore, water below the surface of a public street adjoining an insured’s property is neither mentioned, nor implied by Exclusion 3.

Finally, it bears noting that while the court reversed the trial court’s determination that the broken water main damage was barred by the water damage exclusion, the court affirmed the trial court’s order that the insured had not established that his personal property claim satisfied a named peril. While the court commented that the only named peril that would appear to apply would be coverage for personal property by the “accidental discharge or overflow of water…,” and that provision does not extend if the discharge occurred off the “residence premises,” the court would leave the coverage determination to the trial court because the provision had not been addressed by the parties.
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1 Sosa v. Massachusetts Bay Ins. Co., No. A-5349-16T3, 2019 WL 1780983 (N.J. Super. Ct. App. Div. Apr. 24, 2019).
2 The insurance policy did not define “surface water” and the court found there were two competing but plausible meanings of the term. Surface water has been defined by the New Jersey Administrative Code to possess a permanent nature, akin to a body of water (such as water in lakes, ponds, streams, etc.). Alternatively, a prior opinion of a New Jersey court found surface waters “are those which fall on the land from the skies or arise in springs” and embrace waters derived from falling rain and melting snow, whether on the ground or on the roofs of buildings thereon.

Mold/Remediation: Michigan Appellate Court Addresses Duty Owed Homeowner by Insurance Company and Cleanup Contractor

Walter G. Wright and Claire Maddox | Mitchell Williams | September 12, 2018

The Court of Appeals of Michigan (“Court”) in an August 21st opinion addressed an issue regarding the duty and liability of Farmers Insurance Exchange (“Farmers”) and U.S. Disaster Services LLC (“U.S. Disaster”) owed to an insured homeowner in addressing flood damage. See Abraham v. Farmers Insurance Exchange, No. 335353, 2018 WL 3998728 (Mich. Ct. App. August 21, 2018).

The damage caused by interior flooding included significant mold growth.

The daughter of the homeowner (“Plaintiff”), reported flood damage in her mother’s home to the insurance company (Farmers). Farmers recommended using U.S. Disaster to mitigate the damage caused by the flooding. U.S. Disaster began working on the home after the Plaintiff signed a “Work and Direct Payment Authorization” document.

U.S. Disaster conducted remediation services. In the course of doing so it discovered mold in the subfloor. In response to this discovery the Court notes:

. . . the contract between the homeowner and U.S. Disaster provided that U.S. Disaster “will undertake best efforts to clean and remove only mold and mildew it discovers.” However, when the mold was discovered, U.S. Disaster employees did not attempt to “clean and remove any mold” other than to spray the subfloor with an antimicrobial chemical, an action which U.S. Disaster concedes, is at best, a means to prevent mold from spreading, not to eliminate or contain it. After spraying, U.S. Disaster ceased work and left the premises never to return.

The Plaintiff testified that she overheard a phone call between Farmers and U.S. Disaster in which Farmers told the employee of U.S. Disaster to leave the subfloor in place and not complete remediation.

U.S. Disaster conceded that after discovering the mold, it stopped working and recommended that the Plaintiff hire an environmental consultant.

The trial court granted summary disposition to Farmers and U.S. Disaster. In reviewing the trial court’s decision, the Court stated it must address three questions:

  1. Whether Defendant owed a duty to the Plaintiff
  2. Whether there is a question of fact that this duty was violated
  3. Whether any claim was extinguished by release

The Plaintiff argued Farmers:

  1. owed her a duty to hire a qualified mitigation company to mitigate the water damage,
  2. warn her of the risks associated with mold and advise her to leave the home, and
  3. not to direct or control the scope of U.S. Disaster’s work.

The Court rejected all three arguments. It held the Plaintiff failed to establish any evidence which held the insurance company to such duty, failed to establish U.S. Disaster was not qualified, and failed to state a specific claim in relation to her testimony about overhearing the two Defendants.

The Plaintiff also argued that U.S. Disaster owed her a common law duty to take reasonable precautions to assure that their work did not harm her or make an existing hazard more dangerous. A common law duty analysis balances factors such as relationship of the parties and the foreseeability of harm.

The Court agreed that U.S. Disaster owed the Plaintiff a duty for two reasons:

  1. The duty was to undertake the best efforts to clean and remove any mold
  2. The harm was foreseeable, and U.S. Disaster admitted understanding the risk mold poses

Therefore, given the relationship and foreseeability of harm, U.S. Disaster was held to owe Plaintiff a duty to perform its work so as not to create any new harm or worsen already existing risk of harm.

U.S. Disaster also argued that the case should be dismissed because the Plaintiff signed a release. The Court rejected that argument for three reasons:

  1. There is a question of fact as to when the release was signed and what was known at the time;
  2. There is, at minimum, a question of fact as to whether Plaintiff signed the release as her mother’s attorney-in-fact or in her individual capacity;
  3. There is no evidence in the record that the release was signed in exchange for some consideration

The Court affirmed the grant of summary disposition to Farmers Insurance and reversed the grant of summary disposition to U.S. Disaster.

copy of the opinion can be found here.

Policyholders Can Fully Collect Under a Flood Policy and a Wind Policy at the Same Time

Chip Merlin – July 18, 2014

Intelligent policyholders are not sticking around when their house is being destroyed documenting how much damage was caused by wind and then the flood that accompanies most of these catastrophic events. Yet, their insurance companies want to act as if their policyholders can play god. They demand that policyholder determine what damage was exactly caused by wind before the flood storm surge washed a lot of the evidence away.

Some insurance companies even claim their policyholders are crooks and cheats if they ask each company – the flood and wind carrier – to pay. I am hearing this from some Superstorm Sandy insurance adjusters. Most policyholders are underinsured following a major tropical storm or hurricane and need both policies to pay, at least in part, to be fully indemnified.

This is not the first time this issue has arisen. A good legal discussion of this factual pattern is found in Robichaux v. Nationwide Mutual Insurance Company:1

“Nationwide is contending that…an insured who submits a claim under a SFIP that does not segregate wind damage from flood damage or who submits a claim under a SFIP that includes claims for property damage that are doubtful or uncertain in origin does so at the peril of losing the wind damage benefits that would otherwise be payable under his homeowners policy.

. . .In essence, Nationwide is arguing that the burden is on the insured to properly segregate his losses at the time he makes a claim for SFIP benefits, and that if the insured errs and claims any damages under the SFIP that actually prove to be wind damages, the insured is estopped to make a subsequent claim for these wind damages under his homeowners policy. If this rule were established and followed, the wind insurer, the insurer who sold the homeowners policy, would then have no obligation to pay benefits for wind damages that would otherwise be covered.

. . .I find no authority to support Nationwide’s argument that by making a claim for damages under one policy an insured forfeits his rights under another policy if his original claim proves to be erroneous or over inclusive. In my opinion this would lead to an unjust result.

Insureds are entitled to recover their storm losses under all available insurance policies in accordance with the terms of those policies and the evidence showing the cause of the losses. In the context of catastrophic hurricane losses, the cause of the insured’s property damage is more often than not uncertain and more often than not disputed. It would be unreasonable and unjust to require an insured to correctly segregate his damages between flood losses and wind losses at the time he makes his initial claims at the peril of losing the insurance benefits he has paid for if his attempt at segregating these damages later proves to be incorrect. See: Palmer v. State Farm Fire and Cas. Co., 2007 WL 1459391 (S.D.Miss.2007).

In Ferguson v. State Farm Ins. Co., 2007 WL 1378507 (E.D.La.2007) Judge Berrigan faced a similar factual situation to this. The plaintiffs were insured under both a SFIP and a homeowners policy. Plaintiffs apparently claimed their hurricane losses were payable under both policies. On the basis of a telephone conversation, the SFIP benefits were paid, and State Farm argued that the plaintiffs should be estopped from claiming additional benefits under their homeowners policy. The Court disagreed, holding that the plaintiffs had a right to recover the wind damages covered by the homeowners policy. The Court determined that estoppel did not apply on the facts then before it.

This issue is important in New Jersey and New York as Superstorm Sandy litigation is getting in full swing and those clever insurance defense attorneys are trying their best to keep their neighbors from collecting benefits.

1 Robichaux v. Nationwide Mut. Ins. Co., No. 06-1165, 2007 WL 2783325 (S.D. Miss. Sept. 21, 2007).

via Policyholders Can Fully Collect Under a Flood Policy and a Wind Policy at the Same Time : Property Insurance Coverage Law Blog.