APPLICATION OF WATER-DAMAGE EXCLUSION IN ALL-RISK HOMEOWNER’S POLICY

In Peter Tsai and Barbara Tsai v. Liberty Mutual Insurance Company, 2015 Tex. App. LEXIS 11147, the First Court of Appeals addressed the applicability of the surface water exclusion.  The Tsais do not argue that the term “surface water” is patently ambiguous.  Instead, the Tsais indicated that exclusionary language became ambiguous when viewed in the context of the undisputed determination that the loss was caused when water migrated from the neighbor’s planter to underneath their hardwood floors.

The court noted that surface water has been 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.”  The water that migrated under the Tsais’ flooring derived from rain and sprinkler water that had fallen onto the surface of the planter.  After falling on the planter’s surface, the water did not follow a defined path or channel.  Instead, it passed freely, moving through the upper two to three inches of mulch.  It was not until the planter was “overwhelmed” with water that it migrated under the floors, which were at or slightly below the elevation of the mulch.  That is, the water entered the home was either water that had pooled and collected within the surface layer of the mulch before being released, or it was newly introduced water that served as the tipping point to release water from the saturated mulch.  The water that reached the Tsais’ home was not absorbed “by land.”  The court reasoned that given these characteristics, the water that migrated under the Tsais’ flooring was surface water.

Even though the water flowed through the mulch, it did not lose its character as surface water.  Further, the bare fact that the water migrated from the planter did not change its essential character as surface water.  Whether the loss was caused directly by surface water once the mulch had reached its saturation point or whether it was caused by water released by the mulch once other surface water drained into the planter, the loss would be either directly or indirectly caused by surface water.  Thus, the court held that the loss was excluded under the terms of the policy.

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