Is That Water: (a) Rain, (b) Surface Water, or (c) Overflow From A Drain? (Hint: “All Of The Above” Is Not An Option)
Just as Eskimos are said to have many words for snow, property insurance policies have many words for water. Consider, as the First Circuit recently did, the water collecting on the roof of a five-story mixed-use rental building in Clinton, Massachusetts during a storm. Is it “rain”? (Covered under the insured’s all risk policy only if it enters the building due to damage from a covered cause). “Surface water”? (Excluded in the policy form, but covered under a flood endorsement if a normally dry land area is inundated by an unusual or rapid accumulation or runoff). “Overflow” from the small and inadequate drain at the center of the roof? (An exclusion for overflow from a drain is deleted by the flood endorsement). Does its character change as it overtops two old and leaky skylights and cascades into the building?
The policy’s flood endorsement also deleted the policy’s anti-concurrent causation provision. That provision would have resulted in an excluded cause barring coverage even if another covered cause contributed concurrently or in any sequence to the loss. Because the anti-concurrent causation provision was deleted, the First Circuit was required to apply the “efficient proximate cause” analysis described in Jussim v. Mass. Bay Ins. Co., 415 Mass. 24 (1993) to determine the cause that “set in motion a ‘train of events’ lacking the intervention of any forces or the activation of a new source to cause the interior water damage.” The Court determined that the failure of the drain – and not rain – was the efficient proximate cause of the loss. Because the flood endorsement deleted the exclusion for overflow from a drain, the Court held that the water damage was covered.
In the past, the First Circuit has criticized the “efficient proximate cause” analysis as “doubtful in principle even where the covered risk is narrowly defined . . . but . . . absurd where the initial coverage is all risk.” Central Int’l Co. v. Kemper Nat’l Ins. Cos., 202 F.2d 372 (1st Cir. 2000). Moreover, attempts to distinguish the “efficient proximate cause” among the many causative factors in a progressive loss, or to sort rain water, surface water and overflow from a drain into separate “buckets” after they have damaged the interior of a building, are unlikely to lead to consistent and predictable outcomes. The First Circuit’s decision is perhaps better explained by the fact that the insured purchased the flood endorsement for an additional premium, and by the principle that ambiguities are interpreted in favor of coverage.
Posted In: Property Coverage