Homeowners Insurance Surface Water Exclusion

by Cole Humphreys in Homeowners Insurance at June 18, 2015

Insurance agents in Grand Prairie need to know the exclusions in homeowners policies and how courts interpret those exclusions. A 2007, Dallas Court of Appeals case is one worth reading. It is styled, Crocker v. American National General Insurance Company. Here is some of the information.
The insureds had a homeowner’s insurance policy issued by American. The policy included a standard “surface water” exclusion. Because of improper design, the insureds’ raised patio collected water, which ran into the insured’s home. Armstrong, who represented an independent adjusting firm, was retained by one of the insurance companies to investigate the claim. After Armstrong’s report, coverage for the claim was denied under the “surface water” exclusion. The insureds’ brought suit against the insurance companies for breach of contract and for breach of common law and statutory duties of good faith, arguing that the “surface water” exclusion did not apply because the water was on the patio and never actually touched the surface of the ground. The insured’s also filed suit against Armstrong alleging negligence per se for violations of Texas Penal Code sections 22.02, 28.03, and 28.04; violations of Texas Insurance Code, Section 542.060; and for violations of the DTPA. Both carriers and Armstrong moved for summary judgment. The trial court granted summary judgment for all of the defendants, holding that the water which had fallen on the raised patio constituted “surface water” as a matter of law. Neither American nor Armstrong has addressed the “surface water” exclusion in their motion for summary judgment. The insureds’ appealed.
The Court of Appeals affirmed the trial court, holding that the plain meaning of the words “surface water” could reasonably include water that had collected on the surface of the insured’s patio, and thus, the “surface water” exclusion applied to the insureds’ claim. The court found that “surface water” is defined as water or natural precipitation diffused over the surface of the “ground” until it evaporates, is absorbed by the land, or reaches channels where water naturally flows. The court then found that to limit the term “ground” to dirt would exclude all man-made surfaces and, therefore, render the exclusion virtually meaningless in the multitude of man-made environments. The court also found that since the carriers’ had a valid exclusion they could not be liable for any bad faith claims. The court further found that the summary judgment was valid for both American and Armstrong, under the “surface water” exclusions even though they had not affirmatively pled the exclusion. The court further held that Armstrong as an independent adjuster, owed no duty to the insureds’ and, therefore, could not be liable for bad faith claims; and the insureds’ had not properly briefed the Penal Code claims against Armstrong.

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