The Supreme Judicial Court of Massachusetts found there was no clear answer as to whether water accumulated on a roof is or is not "surface water" in the context of insurance policies. The case is Zurich American Insurance Co. et al. v. Medical Properties Trust Inc. et al, 2024 Mass. LEXIS 289 (Mass. 2024).
A severe thunderstorm dumped heavy rains on Norwood Hospital, flooding the basements of two buildings and accumulating on the parapet roofs. The accumulated water on the roofs seeped into the hospital itself and caused interior and property damage. Medical Properties Trust, Inc. (MPT), the company that owned the hospital, and Steward Health Care System, who leased the property from MPT, both sought coverage from their commercial property insurers. MPT had a policy with Zurich American Insurance Company, and Steward had a policy with American Guarantee and Liability Insurance Company (AGLIC). Each policy stated that a "flood" included "the unusual and rapid accumulation or runoff of surface waters" (emphasis original). Each policy also contained a specific sublimit for flood damages.
Both MPT and Steward each filed a formal proof of loss for more than $200 million, well over their respective flooding sublimits. The carriers decided, and the insureds agreed, that the damages in the flooded basements were subject to the flood sublimits. The carriers also claimed the water accumulated on the roofs was "surface water," meaning those damages were subject to the sublimit for flood.
Zurich filed for declaratory judgment against MPT that the total recovery was limited to MPT's flood sublimit. In a separate action, Steward sought a judgment against AGLIC that its policy flood limit was inapplicable to the entire loss. The insureds asserted that, contrary to what the carriers believed, the accumulated water on the roof that had seeped into the hospital itself was not surface water. All four parties filed motions for summary judgment in their respective actions, each arguing for their own interpretation of "surface water."
The District Court for the District of Massachusetts agreed with the insurers that "surface waters could include the accumulation of waters" on a roof, rather than on the physical surface of the ground based in part on Fidelity Co-Op. Bank v. Nova Cas. Co., 726 F.3d 31 (1st Cir. 2013), where the First Circuit had decided that "accumulated water on the roof of a building [could] be 'surface water' pursuant to an insurance policy." The case went to the judges of the First Circuit, who certified the question of whether water accumulated on parapet rooftops "unambiguously constitute[d] 'surface waters' under Massachusetts law for the purposes of the insurance policies" (emphasis added) at issue to the Supreme Judicial Court of Massachusetts.
Defining "Surface Water"
The justices noted that neither policy at issue defined "surface water." Both the Zurich and the AGLIC policies stated a "flood" included "[a] general and temporary condition of partial or complete inundation of normally dry land areas or structure(s) caused by: … [t]he unusual and rapid accumulation or runoff of surface waters, waves, tides, tidal waves, tsunami, the release of water, the rising, overflowing or breaking of boundaries of nature or man-made bodies of water." (emphasis added).
The insureds argued that "surface water" was specific to water accumulating on the surface of the earth and not on other surfaces. They claimed the terms highlighted above indicated water flowing across the actual surface of the ground, which did not include waters accumulating on other types of surfaces. The carriers, on the other hand, asserted a more literal interpretation of "surface water." They argued "surface water" was a blanket term that encompassed any water that accumulated on any surface, whether or not that surface was the earth's surface. Contrary to what the insureds said, the policy definition of "flood" in both policies also referred to the "inundation of normally dry … structure(s) caused by … surface waters." (emphasis added).
Interpreting "Surface Water"
The Supreme Judicial Court of Massachusetts disagreed with the insureds' interpretation, stating the term "surface water," as a whole, could not be so easily dissected into individual terms. The justices did not disagree with the carriers' argument, but they pointed out that a reasonable insured would have difficulty drawing a clear line between surface water as water specifically accumulating on the earth's surface and surface water as any accumulation of water on any surface.
In the Nova decision cited above, the judges of the First Circuit found that water accumulated on a roof could be surface water, not that it was surface water. Moreover, the nature of the water on the roof was agreed upon, not disputed, by the opposing parties. An analysis of the case law available from other states did not resolve the issue. It only revealed an array of inconsistent decisions without a decisive majority position.
The justices found the differing interpretations of "surface water" proffered by the insureds and the carriers were equally plausible and could sway a jury in either direction. Therefore, the use of the term "surface water" in the Zurich and AGLIC policies was ambiguous. Wherever an insurance policy is ambiguous, it must be construed in favor of the insured.
Conclusion
The Supreme Judicial Court of Massachusetts responded to the certified question from the First Circuit that no, there wasn't a clear answer regarding whether water accumulated on the surface of a roof was "surface water" under Massachusetts law. The underlying case regarding the application or exclusion of the flood sublimits for MPT and Steward remains ongoing.
Editor's Note: As stated in the case above, there is no clear consensus as to whether "surface water" does or does not include water that accumulates on a roof. In this case, the insureds claimed that surface water only extended to water accumulating on the earth's surface and not to water collected on a roof. The carriers argued that surface water encompassed any water that accumulated on any surface, including a roof. The justices of the Supreme Judicial Court for Massachusetts said a jury could go either way. Since the policies at issue could be reasonably interpreted in more than one manner, the term "surface water" was, by definition, ambiguous. Whenever any part of a policy is found ambiguous, it must be interpreted in favor of the insured.
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