Surface water that backs up or overflows from an outside blocked sewer, drain or sump causing a loss inside a commercial building is uncovered under the “anti-concurrent cause” provision in a business owners’ policy even where an endorsement would provide limited coverage.
The Case: Surabian Realty Co., Inc. v. NGM Ins. Co., 462 Mass. 715 (2012)
Why we featured this case:
This is a companion case to the surface water damage case that the supreme judicial court decided, Boazova v. Safety Ins. Co., 462 Mass. 346 (2012) that Agency Checklists published.
The Boazova case and the Surabian both involved interpreting surface water and anti-concurrent cause conditions in relation to policy definitions. Both cases, Boazova and Surabian involved damage caused by surface water to insured property under first party insurance policies: a homeowner’s policy in Boazova and a business owners’ policy in Surabian.
Also, in each case, the insureds had purchased special endorsements for their policies that otherwise provided limited coverage for their damages. But in both cases, notwithstanding the additional endorsements, the insurance companies denied liability under the “anti-concurrent cause” condition relating to the surface water exclusions of their respective policies. The Supreme Judicial Court found in each case that the anti-concurrent clause barred the coverage provided by the additional endorsements.
What You Should Know About This Case:
Surabian Realty owned a three-story professional office building in Foxborough, Massachusetts. A parking lot surrounded the property and, approximately twenty feet from the building in the parking lot, there was a storm drain. In June of 2009, during a heavy rain storm, the rain water stopped flowing into the parking lot drain and as a result seeped into the office building and flooded the lower level of the building causing about $34 thousand in damage to carpeting, baseboards, and walls. Later examination found that the drain had become clogged with debris.
Surabian had an “all risk” businessowners’ policy issued by NGM that covered property damage caused by any peril that was not specifically excluded. One of the specific exclusions in the policy was for water damage, stating: “We will not pay for damage caused by any of the following: “g. Water (1) Flood, surface water,…”
OMNI Gold Endorsement: No “gold” and not “omni”.
Surabian also had paid NGM an additional premium to have the policy’s exclusions modified through NGM’s “OMNI Gold” endorsement. This five-page endorsement replaced individual paragraphs in the policy but more particularly provided limited flood coverage for sewer overflows or backups. The endorsement deleted the provision of the original exclusion and provided instead the following limited coverage:
“Paragraph B.1.g. (3) of the Business Owners Special Property Coverage Form is deleted and replaced by the following:
“The most we will pay for loss or damage caused by water that backs up or overflows from a sewer, drain or sump is $25, 000 for any one occurrence.”
Not surprisingly, Surabian filed a claim with NGM under the endorsement it had purchased claiming that its loss was covered to at least $25 thousand as the blocked sewer had backed up.
NGM denied Surabian’s claim as surface water being a contributing cause under the anti-concurrent loss clause of the policy.
After investigating the cause of the flooding, NGM denied the claim. Surabian’s policy, even with the additional endorsement, still had the so-called anti-concurrent clause found in most policies that provides that all exclusions apply “regardless of any other cause or event contributing concurrently or in any sequence to the loss….”
In Surabian’s case, NGM reasoned that the damage resulted at least in part from surface water, which was still excluded by the policy even with the endorsement that Surabian had purchased for limited coverage for sewer backup.
Surabian sued NGM and lost on summary judgment in the Superior Court. The Supreme Judicial Court allowed Surabian to bypass the Appeals Court so that its appeal could be argued with the Boazova appeal.
What the Court said:
The Supreme Judicial Court started by pointing out that no Massachusetts case had defined the phrase “[w]ater that backs up or overflows from a sewer, drain or sump” as used in policy. However, the Supreme Judicial Court relied upon other courts analyzing this phrase finding that it refers to “damage caused by water that has entered a drain and then is subsequently forced out from or through that drain.” The Court further explained that the consistent finding was that “the water [must have] occupied the pipe or drain before it caused the damage.”
In this particular case, the parties had agreed for summary judgment purposes that the water entering the parking lot drain and water that, as a result of the blockage, never entered the drain remained surface water. This stipulation meant that there was no dispute that the damage resulted from the combination of a covered peril and an excluded peril.
The Court then went on to reaffirm the broad reach of the anti-concurrent loss clause found in this and many other policies that when damage arises from multiple causes, an “anti-concurrent cause” provision can operate to bar coverage. Here, the Court construed the insurance contract, as amended by the Omni Gold Endorsement, to exclude damage caused by flood waters that spread over the surface of the ground without having entered a drain, but to cover damage caused by water that backed up after entering a drain.
Surabian’s argument that the endorsement directly provided coverage for water backup without regard to the other exclusions in the policy fell on deaf ears. The Court held that the endorsement did not restate the surface water exclusion or the anti-concurrent cause provision. It simply provides coverage for damage caused by “water that backs up or overflows from a sewer, drain or sump” subject to the other terms and conditions of the policy.
The Court found that the endorsement provides coverage for water damage resulting from the backup of an interior drain at the property or for a burst water main outside the property. Also, the Court stated that neither the surface water exclusion nor the anti-concurrent cause provision would bar coverage when heavy rain enters a sewer system, is diverted out of the system, and is the sole cause of damage to property.
- Water damage under a homeowner’s policy or any business owners’ policy that involves any form of surface water involvement is going to be a problem claim under the broad interpretations given by the Massachusetts Supreme Judicial Court to anti-concurrent cause policy conditions.
- When insureds pay for special endorsements that modify the exclusions in the policy to provide full or limited coverage, they should be aware that the anti-concurrent clause of the policy may limit coverage in unexpected ways.
- Special endorsements can be useful for extending coverage but they are no replacement for a policy that specifically addresses a specified peril. E.g. flood insurance.
- Insured’s should recognized that a separate flood insurance policy may be the best investment in avoiding an uncovered water loss.