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Insurer wins flood coverage ruling

Posted On: Jan. 7, 2022 1:44 PM CST


Damage caused by a watermain break that was concurrent with a flood is subject to a flood sublimit under an “anti-concurrent causation” clause in the property policy, said a federal appeals court Thursday, ruling in an insurer’s favor in a coverage dispute.

On July 30, 2016, Ellicott City, Maryland, experienced a “1,000-year rainfall,” with four-and-a-half inches of rain falling in an hour and the storm dropping more than six-and-a-half inches of rain before it ended, according to the ruling by the 4th U.S. Circuit Court of Appeals in Richmond in David S. Brown Enterprises Ltd; 8227 Main Street LLC; 8231 Main Street LLC v. Affiliated FM Insurance Co.

The downpour caused nearby rivers to overflow and their contents to spill into the city. At the same time, an underground watermain in the downtown area ruptured, spraying water skyward and adding to the overall water level.

Two downtown buildings suffered water damage as a result. David S. Brown Enterprises sought coverage for the damage from Bellevue, Washington-based Affiliated FM Insurance Co., which said the business was only entitled to $50,000 in coverage under its policy’s flood sublimit.

DSB filed suit, arguing the sublimit was not applicable and that it was entitled to $2 million in coverage, or $1 million for each building. The U.S. District Court ruled in the insurer’s favor.

It was affirmed by a three-judge appeals court panel. The appeals court cited the coverage’s anti-concurrent causation clause, which it said is common throughout the industry and clarifies “an insurer’s obligation when multiple causes (e.g., both floodwaters and high winds) contribute to the damage underlying a claim.”

The ruling cited the March 2019 ruling by the U.S. District Court in New York in New York University v. Factory Mutual Insurance Co., which held that a $40 million flood sublimit was applicable to damage caused by 2012’s Superstorm Sandy.

“We find the analysis of the anti-concurrent causation clause In New York University persuasive,” the 4th Circuit said. “DSB alleges that a broken watermain damaged the Main Street properties, just as NYU claimed that faulty workmanship damaged its facilities. But the Policy contains an anti-concurrent causation clause like the one in New York University,” it said.

“Because it happened concurrently with a flood, whatever water damage the water main break caused is flood damage for purposes of the Policy flood sublimit,” the ruling said, in ruling the “plain language of the Policy caps DSB’s recovery” and affirming the lower court’s decision.

Attorneys in the case did not respond to requests for comment.