Water Exclusion Clause - Archive

Water Exclusion Clause—Archived Article

September, 1997

In Property Insurance Forms

Summary: A standard feature of property insurance forms is the exclusion of various categories of loss associated with water. The water exclusion clause in the commercial property program (Insurance Services Office forms CP 10 10 10 00, CP 10 20 10 00, and CP 10 30 10 00, current edition) and in the ISO homeowners (current edition) policy excludes loss caused by flood, surface water, water that backs up from a sewer or drain, and water under the ground surface. Though the exclusionary language is quite broad, disputes continue to arise when the language is applied to particular loss situations. For instance, the meaning of flood, surface water, water below the surface of the ground, and water that backs up through sewers or drains has not gone unchallenged nor has it met with unanimous agreement among insurance people. The controversies created by differing views have led to several court decisions that are discussed below. Although some of the cases cited in this article are old, all have been verified as being valid case law.

Topics covered:Concurrent causationFlood insuranceSurface water and sewer back-upUnderground waterNatural vs. artificialWater vs. ice

Concurrent Causation

The introductory paragraph to the water damage exclusion says that the policy will not pay for a loss caused directly or indirectly by the excluded peril, regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These words were introduced in 1986 to address the problem of concurrent causation. Briefly, the theory of concurrent causation was used by claimants to argue that if, under an “all risk” (now open perils) policy, there were two causes of a loss, one excluded and one not, the loss would be covered. For example, if faulty construction of a dam caused it to burst, flooding land downstream, property damage caused by the flood should be covered in spite of the flood exclusion, because the faulty construction of dams was not excluded.

Because the catastrophic nature of a flood, hurricane, or tidal wave means that not one or two, but possibly hundreds or thousands of units in a general area, and given the fact that only persons in flood-prone areas will purchase coverage against the exposure, such risks are uninsurable through normal channels. Proponents of the concurrent causation theory argued that it is precisely the catastrophic exposure—that represented by natural and inevitable events rather than accidental or artificial causes—at which the water exclusion, theoretically, is aimed, and not a loss caused by faulty construction of a dam.