Earlier this year, heavy rainstorms in California brought to the forefront the issue of what is a “flood” under California insurance law, particularly in regard to rain and surface water. In the spring, heavy rains on the opposite coast brought to the forefront the same issue in the Carolinas and in Florida. This week, Hurricane Harvey is causing record setting rainstorms along the Gulf Coast of Texas and in Houston as well as further inland. The insurance industry is expecting a deluge of claims similar to that which followed Hurricanes Ike in 2008, Rita in 2005, and Floyd in 1999 as well as tropical storms such as Allison in 2001. It seems timely, therefore, to highlight instructive Texas cases addressing the issue of when is a flood a “flood” as well as the definition of “surface water.”
Texas courts have addressed the common exclusion for damage caused by flood and surface water on several occasions in the cotext of catastrophic events. Absent a definition in a policy, Texas courts define “flood” damage as damage caused by water which has “overflowed a river, stream or natural water course and have formed a continuous body with the water flowing in the ordinary channel.”1 The courts have recognized that the water course does not need to be natural, but includes man-made drainage ditches.2 “Surface water” is generally defined as “water or natural precipitation diffused over the surface of the ground until it either evaporates, is absorbed by the land, or reaches channels where water naturally flows.”3
To avoid the application of the exclusion, policyholders often argue that under certain circumstances, the water loses its “character” as flood water or surface water. The argument has not been well-received by Texas courts. For example, the court rejected an argument that water “mutated from flood water to generic water” when it entered a building and caused damage.4 In Valley Forge, a law firm sustained property time element loss when Tropical Storm Allison caused massive rainfall in Houston and caused the overflow of Buffalo Bayou. The entire area of downtown Houston was flooded, including the Albert Thomas Convention Center. The water entered the basement of the convention center, collapsed a wall, flowed into an underground parking garage, entered a pedestrian tunnel system, and then flowed into the office building where the law firm was located. The building was closed and the firm forced to conduct business from another location.
The law firm argued the policy exclusion for damage caused by flood or surface water did not preclude coverage because, once the water entered the convention center, it was water from an artificial source. The appeals court rejected the argument noting:
Once the water entered the convention center, it behaved as strong waters behave--it caved in an interior wall and rushed onward. It did not back up into a sewer line, cause a water main to burst, commingle with water from an underground swimming pool, or otherwise change or dilute its nature. It simply flowed onward, as flood and surface water is wont to do, obeying the law of gravity and flowing into man-made underground structures.5
Texas courts have also rejected the argument that surface water cannot be water that diffuses across man-made surfaces. For example, in Safeco Insurance Co. v. Moss, the court determined surface water from heavy rains that flowed into an electrical distribution basin, drained into an electrical conduit, flowed downhill to the plaintiffs home and was forced by pressure into the home causing damage, was damage from surface water. The court held the water did not lose its status as surface water just by entering the electrical conduit or other man-made structure.
Similarly, a Texas court held water that diffused across a raised gravel patio did not lose its status as surface water. The court stated “an average reasonable person would not limit surface water to rain falling only on dirt and not on any paved surfaces or other structures.”6
An exception is recognized for damage from water that originates from heavy rains or overflowing rivers or water courses, and then mixes with sewage or changes to vapor. In those instances, the water loses its status as surface water.7
More rains are on the way in Texas this week and the residents and business owners of Texas—as well as the property insurance industry—are bracing for catastrophic flooding and massive property and time element losses from what is predicted to be the worst storm to hit Texas since 1961. The governor of Texas emphasized over the weekend, the focus is on saving lives and will then become rebuilding lives.
1 Valley Forge Ins. Co. v. Hicks Thomas & Lilienstern, L.L.P., 174 S.W.3d 254, 258 (Tex. App.—Houston 2004, pet. denied) (internal quotation marks omitted).
2 George v. State Farm Lloyds, No. 07-12-00465-CV, 2014 Tex. App. LEXIS 5356, at *5 (Tex. App.—Amarillo May 19, 2014, no pet.).
3 Safeco Ins. Co. v. Moss, No. 03-16-00879-CV, 2017 Tex. App. LEXIS 6117, at *7-*8 (Tex. App.—Austin June 29, 2017, pet. pending).
4 Valley Forge, 174 S.W.3d at 258-59.
5 Crocker v. Am. Nat’l Gen. Ins. Co., 211 S.W.3d 928, 936 (Tex. App.—Dallas 2007, no pet.).
6 Id. at 259.
7 Transamerica Ins. Co. v. Raffkind, 521 S.W.2d 935, 939 (Tex. App.—Amarillo 1975, no pet.); State Farm Lloyds v. Marchetti, 962 S.W.2d 58, 61 (Tex. App.—Houston 1997, pet. denied).
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