The insured built their commercial office building twenty years ago around an open atrium with beautiful landscaping, including trees, for the occupants to look out of their windows and admire. Nobody really paid attention to what was happening under the ground with the drainage system until one extremely rainy weekend when rainwater starting backing up in the atrium. The first tenant to show up Monday morning opened the door to their office and – SURPRISE! The entire first floor was covered in ankle-deep water. The building owner was called immediately, who, in turn, called a remediation company. The remediation company determined that tree roots had gotten into the drainage pipes and blocked enough of the pipes that the rainwater was not draining off properly.
The building owner reported the claim to their insurance agent and the insurance company sent out their claim adjustor. Turns out that the claims adjuster took a look around, talked to the building owner, but never asked to see the documentation of the originating cause of the water back up and resultant damage and left. The next thing that the insured received was a claim denial from their commercial package policy insurance company. Although the policy contained coverage called Sewer and Drain Back Up, the company claimed that the loss was caused by flood and therefore the flood exclusion applied to this loss. Needless to say, the insured was a little upset and the insurance agent was flummoxed by this denial as well. The policy language simply said that coverage applied to “physical loss of or physical damage to Covered Property, solely caused by water that backs up from a sewer or drain.” The policy went on to state that “THIS IS NOT FLOOD INSURANCE” and that there is no coverage for water or other materials that back up from any sewer or drain when it is caused by any flood and that flood includes the accumulation of surface water.
How do you resolve these two related issues and gain an understanding of the coverage intent? One must look to the circumstances surrounding the physical loss and put it into context with the policy language. This claim involves direct loss or proximate cause and an understanding of those terms. Most courts have held that the insured must prove that the related incident was the “dominate and efficient” cause of the loss, thus it is the factual, not subjective, determination that will conclude if the loss is covered or excluded by the policy language. In this case, the proximate cause of the water back up was the blockage in the drain, prohibiting the water from draining correctly, rather than an accumulation of surface water and therefore falling within the definition of flood and excluded from coverage.
This claim was ultimately resolved in favor of the insured and the company paid the claim.