The highest court in Massachusetts has ruled that rainwater accumulation on roofs of buildings does not constitute “surface waters” within the meaning of “flood” in property insurance policies.

The court found that the term “surface waters” in policies is ambiguous and the ambiguity must be resolved in favor of policyholders who sought to have the surface water damage to their hospital payable under their policies’ higher overall policy limits rather than the lower flood coverage sublimits.

“In the instant case, neither the specific policy language nor the insurance policy as a whole directly addresses whether surface water includes rainwater accumulating on the surface of a roof,” the Supreme Judicial Court (SJC) stated in an opinion written by Judge Scott L. Kafker.

The SJC further found that the lack of a clear definition is confirmed by the lack of consistency of interpretation in the case law regarding whether the term “surface waters” includes rainwater accumulating on a roof.

A ruling by a federal district court favoring the insurers is under appeal before the First Circuit Court of Appeals. Last December, that court sought help from the state’s top court before proceeding, asking the SJC to answer this question:

“Whether rainwater that lands and accumulates on either (i) a building’s second-floor outdoor rooftop courtyard or (ii) a building’s parapet roof and that subsequently inundates the interior of the building unambiguously constitutes ‘surface waters’ under Massachusetts law for the purposes of the insurance policies at issue in this case?”

The SJC answered the question directly as follows:

“Rainwater that lands and accumulates on either a building’s second-floor outdoor rooftop courtyard or a building’s parapet roof does not unambiguously constitute ‘surface waters’ under Massachusetts law for the purposes of the policies at issue in this case. We also report that any such ambiguity as to the intended meaning of the words must be resolved against the insurance company that employed them and in favor of the insured.”

The SJC’s ruling favors hospital landlord Medical Properties Trust Inc. (MPT) and hospital operator Steward Health Care System who maintained that damage from water on their roof of their Norwood Hospital facility should not be subject to the coverage limitations for “flood” damage in policies issued by Zurich American Insurance Co. and American Guarantee and Liability Insurance Co. (AGLIC).

The Policies

In June 2020, the hospital suffered significant damage after severe thunderstorms passed through Norwood. Torrential rain and strong wind gusts caused heavy flooding in the basement of the hospital’s two main buildings. Rainwater also accumulated on the hospital’s roof and a second-floor courtyard, eventually seeping into the hospital’s upper floors. Some of the hospital’s buildings have “parapet roofs,” meaning a roof enclosed by a wall surrounding the roof’s outer perimeter. Moreover, the rainwater that inundated the hospital’s upper floors from the roof and courtyard never reached the earth’s natural surface nor any other ground-level surface before entering the hospital.

MPT’s Zurich policy provides a total of $750 million in coverage. Steward’s AGLIC policy provides a total of $850 million in coverage. Both policies consider flood a covered cause of loss. But both policies also limit the amount of coverage for flood damage. Zurich limits its flood coverage to $100 million, while AGLIC limits its flood coverage to $150 million. The policies do not define “surface waters.”

State’s High Court Asked to Define ‘Surface Waters’ Under Flood Coverage

MPT and Steward each submitted proof of loss claims exceeding $200 million. The parties agreed that the water damage to the hospital’s basements was due to surface water and thus fell within the sublimits for damage caused by “flood.”

They disagreed, however, whether the water that accumulated on the roofs and infiltrated into the buildings was also surface water, and thus whether the damage resulting from the water infiltration was due to “flood” and should be subject to the flood sublimits.

The insurers took the position that substantially all the damage to the hospital was caused by “flood” because the rainwater that accumulated on and seeped through the roofs was also “surface waters.” Accordingly, the insurers informed MPT and Steward that they would enforce the flood sublimits on all damage throughout the hospital.

Both Plausible

The SJC commented that both parties proposed “plausible interpretations” based on the policy language alone. MPT and Steward essentially contended that the plain meaning of “surface waters” is waters on the surface of the earth — that is to say, water at ground level or on a ground-level surface. The flood provision’s reference to “waves, tides,…[and] the rising, overflowing or breaking of boundaries of…bodies of water” further supports that interpretation. The listed terms all describe water on the ground or moving from a body of water or watercourse generally understood to be waters existing on the surface of the earth. Surface waters, in their view, are not merely waters accumulating on surfaces. They argued that the two words cannot be so separated.

The insurers, by contrast, contended that the plain meaning of “surface waters” is waters naturally accumulating on surfaces, not just waters accumulating on the surface of the earth. Their interpretation aligns with a literal interpretation of the words “surface waters,” as well as the absence of the particular words “surface of the earth” or “ground” in the definition of “flood.

Also, insurers pointed out that the introductory clause’s language of “inundation of normally dry…structure(s) caused by…surface waters” also supports their interpretation, as the water on the surface of the roof inundated the structures. Furthermore, the insurers relied on common-law cases defining surface water to include water overflowing from roofs. Finally, they argued that rain accumulating on the ground and on a roof from the same storm would appear to be difficult for a reasonable insured to distinguish in this context. In both circumstances, an unusual and rapid natural accumulation of rainwater is inundating a structure.

The SJC concluded “that it is ambiguous whether rainwater accumulation on roofs constitutes ‘surface waters’ within the meaning of the policies. In evaluating such accumulation, the term ‘surface waters’ as used in the present policies is susceptible to two meanings, and reasonably intelligent persons could differ as to which meaning is the proper one.”

Case Law Review

The SJC turned to case law to resolve the uncertainty created by the competing interpretations but after undertaking a comprehensive review it found no consistent interpretation and no clear majority position. Some courts have concluded that the water must be on the ground, but others have not, while still other courts have concluded that it is ambiguous. The SJC itself has decided two prior cases involving surface waters but neither case involved the accumulation of rain on a roof.

The court added that the insurers could have defined surface waters to include the unusual accumulation of rainwater on a roof, but they did not clearly do so. Because the insurers did not do so, it remains ambiguous whether the damage to Norwood Hospital from water infiltration through the roof is subject to the policies’ sublimits, and thus the court said it must rule in the insureds’ favor.