Court of Appeals: Div. III – Damage Caused by Snowmelt Is Not Covered Under “Surface Water” Policy Exclusion
As I learned in law school, there is a plethora of cases that deal with insurance companies denying coverage based on definitions of words, like “surface water.” You would think that after all of this litigation that the insurance policy would clearly define all aspects of coverage and any ambiguous wording. But perhaps they want to leave it this way so they can deny coverage more easily.
In this case, National Fire insured NW Bedding under an all risk commercial property coverage and general liability insurance policy. That sounds like it would just about cover anything. In fact the policy stated that it covered "direct physical loss of or damage to Covered Property . . . caused by or resulting from any Covered Cause of Loss."
The Spokane area experienced heavy snowfall during the winter of 2007-08. Imagine that! In February, the WSDOT diverted snowmelt through trenches in the vicinity of Northwest Bedding. The water overflowed the trenches onto Northwest Bedding's property and building, inundated Northwest Bedding's building and damaged both the building and property. It’s never good to get bedding wet. National Fire concluded that the loss was the result of “surface water” and, therefore, excluded from coverage.
Northwest sued National for damages and a declaratory judgment that the loss was covered. “A declaratory judgment?! Here’s a declaration for you: DENIED!!” (Only my law school classmates will appreciate this). The trial court ruled in favor of National, holding that the insurance policy did not provide coverage for this type of damage. Northwest appealed.
An "all-risk" policy covers any peril that is not specifically excluded in the policy. So the magical word in this policy is “surface water,” which was specifically excluded in the policy. Northwest argued that the damage wasn’t from surface water, but caused by third parties channeling the water onto their property. National agued that directly or indirectly the damage was caused by surface water from snowmelt. In addition, National argued that even if the water was diverted, at some point the water escaped the trenches and thus became surface water once again. Of course the policy does not define “surface water” or “flooding.” How convenient! Undefined terms in insurance policies should be given their plain, ordinary, and popular meaning.
Washington courts have characterized "surface water" as follows: The chief characteristic of surface water is its inability to maintain its identity and existence as a body of water. It is thus distinguished from water flowing in its natural course or collected into and forming a definite and identifiable body, such as a lake or pond.
Division III agreed with National that no matter what the water was classified at its origin and in its travel through the trenches, once it escaped the trenches it was surface water and thus excluded from coverage. I guess Northwest should have opted for that extra Surface Water Protection Policy, which probably excludes “flooding.”