Sixth Circuit Enforces First-Party Property Policy’s Flood Exclusion for Flood Damage Caused by Eight Inches of Rain

In Express Jewelry Enterprises Inc. v. National Fire Insurance Company of Hartford, the Sixth Circuit Court of Appeals found that a flood exclusion precluded coverage for property damage following a night of heavy rains. The basement of a jewelry store in Dearborn, Michigan, was inundated with high water after the city experienced almost eight inches of rain in a short period of time, overwhelming the city’s sewer system, which led to the jewelry store’s draining system backing up and flooding the basement. The insurer denied the jewelry store’s claim for coverage.

The policy excluded coverage for damage to the interior of the building caused by rain unless there was roof or wall damage preceding the rain caused by wind or hail. The policy also included a coverage extension for water damage caused by sewer or drain backups and overflows, but that provision contained a carveout for water damage caused by a flood, which the policy specifically defined as a “general and temporary condition of partial or complete inundation of normally dry land areas.” Because the insurer determined that the insured had not established that wind or hail damage to the roof or walls occurred prior to the rain and further determined that the flood was the cause of the draining system backup and overflow — and thus the cause of the water damage — it denied coverage.

Following general principles of contract interpretation which require enforcing an unambiguous contract as written, the court agreed with the insurer’s determinations. The insured had the burden to prove coverage in the first place. In relying on conclusory testimony that wind and hail damage preceded the rain, which was demonstrably false, the court determined that the insured had not met its burden in the first instance. And with respect to the second provision, which provided coverage for water damage from backups and overflows, the court found that the flood exclusion was “straightforward” and plainly applicable based on the “natural reading” of the policy language. Namely, the court found that the downpour of rain inundated normally dry land resulting in pools of water, in other words that the rain caused a flood as specifically defined by the policy. And, according to the court, it was the flood that overwhelmed the sewers and kept them from properly draining, which ultimately resulted in water damage to the basement.

The court rejected the jewelry store’s narrow reframing of the cause of the water damage as the sewer backup, determining that absent the excessive rain and flooding there would have been no capacity issues with the sewer.