What you need to know:
The Massachusetts Supreme Judicial Court ruled that coverage under an all-risk policy was excluded where damage was caused by both covered and excluded perils, and the exclusion applied whether or not any other cause contributed to the damage.
What you need to do:
Companies should consider the impact of the SJC’s ruling in assessing coverage where policies contain anti-concurrent cause provisions.
The policyholder’s office building was damaged after rain stopped flowing down the drain of an adjacent parking lot and flooded the basement. The insurer’s all-risk policy covered “water that backs up or overflows from a sewer, drain or sump,” but excluded coverage for damage caused directly or indirectly by “surface water.” The parties agreed that the damage resulted from a combination of surface water and water that backed up from a drain. The exclusion provided that “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” The trial court granted summary judgment for the insurer, ruling that the loss was caused in part by surface water and therefore coverage was excluded under the anti-concurrent cause provision. The Supreme Judicial Court affirmed. See Surabian Realty Co., Inc. v. NGM Ins. Co., No. SJC-11060, 2012 Mass. LEXIS 654 (Mass. July 12, 2012).
The Court’s Ruling
The Supreme Judicial Court held that:
- The rain that collected on the parking lot was “surface water,” which was excluded, and therefore the damage was caused by a combination of a covered peril and an excluded peril.
- The Court concluded that “[a]nticoncurrent cause provisions, which disclaim coverage when damage is caused concurrently by an excluded peril and a covered peril, are valid and enforceable under Massachusetts law.” The Court held that the anti-concurrent cause provision was unambiguous and “fully consistent with the public welfare,” and did not render coverage under the policy illusory.
- The Court accordingly ruled that the anti-concurrent cause provision barred coverage for the insured’s claim.
The Massachusetts Supreme Judicial Court ruled that the all-risk policy excluded coverage where damage was caused by both covered and excluded perils, and the exclusion applied whether or not any other cause contributed to the damage.