Hunton Insurance Recovery Blog

Hunton’s insurance team has offered its support on behalf of amicus curie United Policyholders in a brief to the First Circuit concerning the meaning of “surface water” in the context of a broad, all-risk property insurance policy?

This important question arose in a dispute between Medical Properties Trust (“MPT”), a real estate investment trust, and Zurich American Insurance Company (“Zurich”), its insurer, after water entered and destroyed Norwood Hospital. The water at issue entered the building after collecting on the surface of the building’s flat parapet roof. Zurich argued that because the water collected on the surface of the roof, the water met the meaning of the term “surface water,” as that term was used in the policy’s definition of “flood.” Flood coverage is subject to a $100 million sublimit, whereas the policy’s general limit is $750 million. 

Zurich’s policy defines “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, waves, tides, tidal waves, tsunami, the release of water, the rising, overflowing or breaking of boundaries of nature or man-made bodies of water; or the spray there from all whether driven by wind or not[.]

Critically, the policy does not define “surface waters.” But the Massachusetts Supreme Judicial Court has previously interpreted “surface water” to mean waters “that lie or flow on the surface of the earth and naturally spread over the ground but do not form part of a natural watercourse or lake,” Boazova v. Safety Ins. Co., 462 Mass. 346, 354, 968 N.E.2d 385 (2012). Capping the hospital’s coverage at the flood sublimit, Zurich maintained that water on an elevated roof met this interpretation.

United Policyholder’s amicus brief illustrates why Zurich’s attempt to expand the meaning of “surface waters” to include waters that accumulate on an artificial surface one or more stories above ground is contrary to the insurance industry’s historical application of flood coverage and contrary to all reasonable expectations under Massachusetts historical precedent. In Massachusetts, flood insurance has historically applied to water on the ground, typically that has overflowed its naturally boundaries, such as a river or a lake or storm surge on the coast. This is consistent with how the insurance industry rates flood risk—focusing on a property’s proximity to bodies of water, as well as its elevation and the features of the building’s ground level—not its roof.

United Policyholder’s argued that to interpret the policy in the way Zurich suggests would undermine the flood coverage for which policyholders bargained and paid.

The case is Zurich American Insurance Company v. Medical Properties Trust, Inc., No. 23-1167 (1st Cir.).