In a latest resolution, Zurich American Insurance coverage Firm (“Zurich”) vs. Medical Properties Belief, Inc. (“MPT”) and Steward Well being Care (“Steward”), the Supreme Judicial Court docket (“SJC”) addressed an open query in Massachusetts property insurance coverage regulation:
Does the time period “floor water” in property insurance coverage insurance policies embrace rainwater that accumulates on roofs and causes inside injury?
This query stemmed from a extreme 2020 rainstorm that triggered disputed injury claims of over $400 million to the Norwood Hospital constructing and facility, ensuing within the constructing’s whole loss.
The SJC, responding to a licensed query from the Federal First Circuit Court docket of Appeals, dominated that “floor water” doesn’t unambiguously embrace water on roofs on this context. Discovering the time period ambiguous, the SJC utilized the contra-insurer rule, construing the paradox in favor of the insureds in opposition to the insurers that drafted the insurance policies.
The SJC’s reply decided the injury from rainwater accumulating on the roof earlier than coming into the higher flooring of the Norwood Hospital constructing didn’t fall beneath MPT and Steward’s insurance policies’ $100 million and $150 million flood sublimits however beneath the upper total protection limits of $750 and $850 million, respectively. Collectively, MPT’s proof of loss had sought $221,033,890 from Zurich, and Steward’s sought $202,483,879 from its insurer and American Assure and Legal responsibility Insurance coverage Firm (AGLIC)
This resolution doubtlessly expands protection for sure water injury claims in Massachusetts, putting a burden on insurers to make clear coverage language in the event that they want to restrict such protection.
Background of the dispute over the which means of “floor water”
In June 2020, extreme thunderstorms in Norwood dropped greater than six inches of rain in roughly 90 minutes. The sudden deluge triggered extreme injury to the Norwood Hospital constructing, which was owned by MPT and leased to Steward. The sudden accumulation of rainwater flooded the Hospital’s basement and pooled on the Hospital’s roof and upper-level outside areas. These elements of the constructing, together with elevated courtyards and parapet roofs—roofs bordered by a wall—seeped the pooled water into the Hospital’s higher flooring with out the water ever touching the bottom.
MPT’s property coverage with Zurich offered $750 million in protection for “injury attributable to a Coated Reason for Loss to Coated Property.” The AGLIC coverage offered Steward with $850 million in protection for “injury attributable to a Coated Reason for Loss to Coated Property.”
Each insurance policies think about “Flood” a “Coated Reason for Loss.” The insurance policies outlined “Flood” as:
A basic and momentary situation of partial or full inundation of usually dry land areas or construction(s) attributable to:
The weird and fast accumulation or runoff of floor waters, waves, tides, tidal waves, tsunami, the discharge of water, the rising, overflowing or breaking of boundaries of nature or man-made our bodies of water; or the spray there from all whether or not pushed by wind or not[.]
Nevertheless, the insurance policies’ flood coverages had sublimits of $100 million (Zurich) and $150 million (AGLIC).
The $400 million in claimed losses and the carriers’ flood sub-limits
In August 2020, Zurich and AGLIC decided that water injury within the Hospital’s basement was attributable to a “Flood” and could be topic to the insurance policies’ flood protection sublimits of $100 million and $150 million, respectively.
For the higher ground injury from pooled water, Zurich and AGLIC said that this injury “seems to have resulted from water intrusion attributable to wind-driven rain and/or overflow of roof drains and parapet flashings” and, due to this fact, the insurers indicated that they’d “separate the flood injury sustained on the basement and floor flooring . . . from the water intrusion property injury sustained on the primary, second[,] and third flooring.”
A number of months later, MPT submitted a proof of loss for $221,033,890, consisting of the total $100 million Flood sublimit plus a further $121,033,890 as ‘Storm’ injury not topic to the coverage’s flood sublimit. Steward then submitted its proof of loss for $202,483,879, made up of $112,218,364 for flood injury and $90,265,515 ‘Storm’ injury, not topic to the flood sublimit, incurred for the water pooled on the roof and parapets.
Following the submissions of claims totaling $423,517,769 million, every service reassessed their protection positions.
In December 2020, Zurich suggested MPT that it could acknowledge its declare for the total $100 million “Flood” sublimit plus a further $121,033,890 labeled as “Storm” injury. Nevertheless, the service’s authorized place was that almost all of the damages from the June 28, 2020, incident have been topic to the coverage’s $100 million “Flood” sublimit.
Zurich reasoned that water coming into at or under floor ranges and amassed water on the roof each contributed to the issue, thereby inflicting a “Flood” subject, even on higher flooring. Zurich seen MPT’s declare for storm injury as an try and sidestep the flood injury sublimit and denied everything of MPT’s declare that exceeded the flood sublimit
AGLIC adopted Zurich’s protection place in responding to Steward’s declare for $112,218,364 for “Flood” and a further $90,265,515 for “Storm” injury. AGLIC suggested Steward that everything of the water injury could be thought of beneath the “Flood” class, implementing a coverage sublimit of $150 million throughout all ranges of the Hospital.
Lawsuits over what’s “floor water” referred to Massachusetts’ highest courtroom
Zurich filed go well with in opposition to MPT, and Steward filed in opposition to AGLIC in Federal Court docket, every looking for declaratory judgments on protection phrases. Specifically, the which means of “floor waters” within the context of flood protection when the water inflicting the injury by no means touches the bottom. MPT and Steward argued that the injury to the higher flooring was not topic to the flood sublimits of their insurance policies. They reasoned that the water accumulating on the higher flooring was not “floor waters” throughout the definition of their restricted flood protection.
The federal district courtroom dominated in favor of the insurers however allowed a direct attraction to the First Circuit of Appeals to resolve on the which means of “floor waters” in these insurance policies.
The First Circuit, nevertheless, decided the character of “floor waters” on this case was an unresolved query of Massachusetts regulation and, given the substantial financial claims, determined to certify the query of what’s “floor water to the SJC for clarification.
For the reason that First Circuit determined that there was no clear Massachusetts authorized precedent that might resolve the dispute over water accumulating on roofs and parapets, the First Circuit referred the choice to the SJC beneath a proper course of referred to as “Certification.”
Underneath its certification rule, the SJC permits federal courts or different state supreme courts to certify questions of state regulation which are “determinative of the trigger then pending within the certifying courtroom,” however for which there is no such thing as a controlling precedent by the SJC.
Query licensed to the SJC for a solution
The First Circuit recognized the query to certify to the Massachusetts SJC for its consideration as:
“Whether or not rainwater that lands and accumulates on both (i) a constructing’s second-floor outside rooftop courtyard or (ii) a constructing’s parapet roof and that subsequently inundates the inside of the constructing unambiguously constitutes “floor waters” beneath Massachusetts regulation for the needs of the insurance coverage insurance policies at subject on this case?”
The query of what the time period ‘floor water’ means argued to the SJC
Earlier than the SJC, MPT and Steward argued that the water injury to the higher flooring of the insured property was not topic to the insurance policies’ flood sublimits as a result of the water that amassed on the roofs shouldn’t be categorized as “floor water.” They contended that “floor waters” referred particularly to water at floor stage. Conversely, Zurich and AGLIC maintained that the rooftop water constituted “floor water” and, due to this fact, the ensuing injury was topic to the coverage’s flood sublimits.
SJC observes the time period ‘floor water’ undefined within the insurance policies
The SJC’s reasoning in deciding whether or not the time period ‘floor water,’ as used within the Zurich and AGLIC property insurance policies, utilized to water pooling on parapet roofs and a second-floor outside rooftop courtyard adopted a structured method.
The Court docket begins by addressing the coverage language itself, noting:
“Neither the particular coverage language nor the insurance coverage coverage as an entire immediately addresses whether or not floor water consists of rainwater accumulating on a roof.”
The absence of a coverage definition for floor water required the Court docket to find out whether or not the time period as used had an unambiguous which means within the context of the insurance policies’s definition of a “Flood” and the insurance policies’ flood sublimit.
The SJC appears for consensus on the time period’s which means from different courts
The SJC subsequent engaged in a complete assessment of courtroom selections involving protection fits involving “floor water,” each inside Massachusetts and throughout different jurisdictions, as as to whether there was a basic consensus on the which means of ‘floor water’ in relation to property coverage interpretation. This evaluation revealed a notable lack of consensus on the interpretation of “floor water” within the context of water on roofs. Because the Court docket explicitly said:
“Our assessment of the case regulation outdoors of Massachusetts additionally reveals no ‘constant interpretation’ of whether or not floor waters embrace rainwater amassed on a roof.”
The SJC characterised this cut up in authorized authority, stating:
“Some courts have concluded that the water should be on the bottom, however others haven’t, reasoning that floor waters’ embrace waters derived from falling rain and melting snow, whether or not on the bottom or on the roofs of buildings thereon.’”
The SJC highlighted cases the place courts throughout the identical state reached conflicting conclusions, citing examples from Colorado and Louisiana. To the SJC, this lack of uniformity served not simply as proof of disagreement however as a sign that the time period “floor water” was prone to mutually unique cheap interpretations.
The SJC’s prior selections provided no reply
In analyzing its personal case selections on the which means of ‘floor water,’ the SJC distinguishes two of its earlier selections that held floor water inflicting property injury to the insured constructing had no protection. The SJC dominated these selections had no software to the licensed query as a result of: “Neither case concerned the buildup of rain on a roof.”
The SJC finds the time period ‘floor water’ is ambiguous within the circumstances
Finally, the SJC dominated:
“We conclude that it’s ambiguous whether or not rainwater accumulation on roofs constitutes ‘floor waters’ throughout the which means of the insurance policies. In evaluating such accumulation, the time period’ floor waters’ as used within the current insurance policies is prone to 2 meanings, and fairly clever individuals may differ as to which which means is the right one.”
Discovering the time period ‘floor water’ ambiguous results in a ruling in favor of insureds
The Court docket’s discovering of ambiguity then triggered the applying of the contra proferentem rule, which states that if a contract time period is ambiguous, it ought to be interpreted in opposition to the one that wrote it. On this case, the SJC interpreted the paradox in favor of the insureds.
The SJC emphasised this rule, stating:
“The place the insurer had the power to incorporate… language in its coverage that clearly would have excluded a disputed loss and failed to take action, we is not going to interpret the coverage to exclude protection for that loss.”
Report back to the First Circuit Court docket of Appeals of the reply to the licensed query
The SJC ended its opinion with directions for the Clerk of the Supreme Judicial Court docket to transmit a licensed copy of the choice with the assertion:
We reply the reported query as follows. Rainwater that lands and accumulates on both a constructing’s second-floor outside rooftop courtyard or a constructing’s parapet roof doesn’t unambiguously represent “floor waters” beneath Massachusetts regulation for the needs of the insurance policies at subject on this case. We additionally report that any such ambiguity as to the meant which means of the phrases should be resolved in opposition to the insurance coverage firm that employed them and in favor of the insured.
The additional proceedings within the First Circuit Court docket of Appeals after receipt of the choice of the SJC
Based mostly upon the SJC’s resolution, the First Circuit will nearly actually vacate the US District Court docket’s judgment in favor of the insurers and subject an order for judgment to enter for the insureds on protection beneath the bigger coverage restrict.
Assuming there is no such thing as a additional dispute over the quantities of the proofs of loss and the precise damages, the District Court docket would enter judgment and award breach of contract curiosity at 12 p.c every year from the date of the insurers’ refusal to pay the monies now due beneath their insurance policies past the insurance policies’ flood sub-limit.
