Anticoncurrent Causation Clause
The insured owner of a commercial building brought an action against its property insurer, alleging that the insurer had wrongfully denied coverage for damage caused when a parking lot drain backed up during heavy rains, causing flooding in the building. This case is Surabian Realty Company v. NGM Insurance Company, 971 N.E.2d 268 (2012).
Surabian owns and operates commercial and residential properties in Massachusetts and Rhode Island. One of its properties is a three-story professional office building. A parking lot surrounds the property and a drain is located in the parking lot approximately twenty feet from the building.
In June 2009, heavy rains fell around the area and the drain became clogged with debris. As a result, the water collected in the parking lot and seeped under the door of the building, flooding its lower level. The flooding caused damage to the carpeting, baseboards, and walls, totaling about $34,000. The insured tendered a claim to its insurer, NGM. The policy was an all risk insurance policy with an exclusion applying to damage caused directly or indirectly by flood, surface water, water that backs up from a drain, or water seeping through foundations, walls, floors, or paved surfaces, doors, windows, or other openings. This exclusion applied regardless of any other cause or event that contributed concurrently or in any sequence to the loss. However, Surabian had purchased at additional cost an endorsement that amended the water exclusion to the extent that the insurer promised to pay for loss or damage caused by water that backs up or overflows from a sewer, drain, or sump in the amount of $25,000 for any one occurrence.
The insurer denied the claim, reasoning that the damage resulted at least in part from surface water and this was excluded by the policy. Surabian sued and a judge in the Superior Court ruled in favor of NGM. That court found that, although the damage was partially caused by water that had backed up from a drain, the anticoncurrent causation provision excluded coverage for surface water, regardless of any other cause or event. This appeal followed.
The Supreme Judicial Court of Massachusetts said that its first task was to construe the phrases “surface water” and “water that backs up or overflows from a sewer, drain, or sump”.
The court said that surface water is waters from rain, melting snow, springs, or seepage, or floods that lie or flow on the surface of the earth and naturally spread over the ground, but do not form part of a natural watercourse or lake. Rain that collects on a paved surface, such as a parking lot, retains its character as surface water, and moreover, rain that collects on the ground is considered surface water even when, but for an obstruction, the water would have entered a drainage system. Water that backs up from a drain refers to water that has entered a drain and then is subsequently forced out from or through that drain. The water must have occupied the pipe or drain before it came back out and caused damage.
Construing these phrases in combination, the court interpreted the insurance contract, as amended by the 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. In this case, both parties agreed that the present damage resulted from the combination of water that backed up after entering the parking lot drain and water that, as a result of the blockage, never entered the drain and remained surface water. The damage thus resulted from the combination of a covered peril and an excluded peril.
The court decided that when damage arises from multiple causes, an anticoncurrent causation clause may operate to bar coverage. Such a clause that disclaims coverage when damage is caused concurrently by an excluded peril and a covered peril is valid and enforceable in Massachusetts. The court said enforcement of anticoncurrent causation clauses is fully consistent with the public welfare and the vast majority of states have upheld and applied such clauses.
Because the denial of coverage was based on a correct interpretation of the insurance policy, the Supreme Judicial Court affirmed the judgment of the trial court. The policy did not provide any coverage for this claim.
Editor's Note: The Supreme Judicial Court of Massachusetts addresses the anticoncurrent causation clause that is found in many property policies. Like the vast majority of states today, the court upheld the clause and applied it to support the insurer's denial of coverage.
This case is also noted for the court's defining of the phrases “surface water” and “water backing up from a drain”.