Rainwater Collecting on Rooftop is not Subject to Policy’s Flood Sublimits

    Responding to a certified question from the First Circuit, the Supreme Judicial Court of Massachusetts determined that rainwater collecting on the insureds' rooftop and causing interior damage was not "flood" as defined in the policy and subject to sublimits. Zurich Am. Ins. Co. v. Medical Properties Trust, Inc., 2024 Mass. LEXIS ___ (Mass. July 23, 2024). 

    A severe thunderstorm caused heavy rain and strong winds which damaged a hospital. The hospital was owned by Medical Properties Trust, Inc. (MPT) and leased to Steward Health Care System LLC (Steward). Ground water accumulated and flooded the basement. Rainwater also accumulated on the hospital's parapet roofs and on the second-story courtyard, and eventually seeped through the parapet roofs and courtyard to the hospital's upper floors, causing damage to the building and property within.

    MPT sought coverage from its property insurer, Zurich, and Stewart sought coverage from American Guarantee and Liability Insurance Company. Both insurers issued policies that covered "flood" and defined "flood" as 

A general and temporary condition of partial or complete inundation of normally dry land areas or structure(s) caused by:

The unusual and rapid accumulation or runoff of surface waters . . .

The policies had separate coverage limits for damages caused by floods. The Zurich policy limits for flood were $100 million. The American Guarantee policy limits for flood coverage were $150 million. Both insureds submitted proof of loss claims to their respective insurers, each exceeding $200 million. The insurers determined that substantially all of the damages incurred were subject to the flood sublimits. The insurers reasoned that the water that accumulated on the parapet roofs and rooftop courtyard was "surface water," and thus the resulting water damage to the upper floors of the hospital was damage due to "flood." Both parties agreed that the water damage to the hospital's basements was caused by surface water and was subject to the policies' flood sublimits.

    Zurich sued MPT, seeking a judgment that MPT's recovery was limited to the policy's $100 million flood sublimit. Steward sued American Guarantee seeking a judgment that the policy's $150 million flood sublimate did not apply to all its losses from the storm. Cross motions for partial summary judgment on the interpretation of the term "surface waters" under each policy were filed. The federal district court granted partial summary judgment to the insurers, concluding that "surface waters" could include the accumulation of waters "constrained" before reaching the ground.

    An interlocutory appeal was filed. The First Circuit certified the question of whether rainwater that accumulates on a building's rooftop courtyard or a building's parapet roof and subsequently inundates the interior of the building unambiguously constitutes "surface waters." 

    The Massachusetts court found that the meaning of "surface waters" in the policies was ambiguous. MPT and Steward contended that the plain meaning of "surface waters" was waters on the surface of the earth – i.e., water at ground level or on a ground-level surface. The insurers submitted that the plain meaning of "surface waters" was waters naturally accumulating on surfaces, not just waters accumulating on the surface of the earth. 

    The court surveyed the case law and concluded that there was no consistent interpretation regarding whether the term "surface water" included rainwater accumulating on a roof. Therefore, it was ambiguous whether rainwater accumulation on roofs constitutes "surface waters" within the meaning of the policies.

    The court therefore answered the certified question 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 the case.