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.
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.