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Insurance Law

McCarter & English on the Continuing Debate Over the Breadth and Limits of the Exclusion for "Water Under the Ground Surface" in First-Party Policies

Sherilyn Pastor, Brian Osias, Jerry Sattin, and Cynthia Betz   By Sherilyn Pastor, Brian J. Osias, Jerry P. Sattin, and Cynthia S. Betz, Attorneys, McCarter & English, LLP

The insurance industry has done little or nothing to resolve an ongoing dispute about policy language related to a subsurface water exclusion that has split jurisdictions for more than four decades.  The exclusion appears in various forms of property insurance policies and typically excludes loss where, for example, a subsurface aquifer causes pressure on a foundation causing damage.  Less than clear is what happens when the loss is caused by a ruptured water main or sewage pipe or if the subsurface water derives from an artificial source.  Some courts read the exclusion literally, but others acknowledge that a literal read of the exclusion renders it so broad that, together with another water-related exclusion for surface water, coverage is practically eviscerated.

In its most uncontroversial form, the subsurface water exclusion is triggered when the loss is caused by groundwater exerting pressure on a structure.  For example, in one case where the exclusion was held applicable, rain increased subsurface water pressure which caused a drained swimming pool to lift off its foundation resulting in damage.  Other cases, however, take the exclusion one step further: the water pressure is not due to groundwater but to water leaking from a pipe.  The policyholders in these cases argue that the source of the water should be a factor in the analysis even though the plain language of the exclusion says nothing about the water source.  Courts adhering to the "plain and ordinary meaning" approach to the exclusion generally reject the argument.

Subsurface Water Damage

Another line of cases takes a very different view of the phrase "water under the ground surface," undertaking an analysis that considers the source of the water causing damage.  These cases distinguish natural source water, like underground streams or aquifers, from artificial source water, like water mains or sewage pipes, and conclude that coverage is excluded only for water from natural sources.  Several analytical approaches are used to reach this result, but the driving force seems to be the perception that the insurers are overreaching in applying the exclusion so broadly as to effectively negate coverage for all or almost all loss caused by water without actually saying so.

Sherilyn Pastor and Brian Osias are partners, Jerry Satin is counsel, and Cynthia Betz is a senior associate with McCarter & English, LLP's Insurance Coverage & General Litigation Group.  Ms. Pastor is the Practice Group Leader and a member of the firm's Executive Committee.  Ms. Pastor, Mr. Osias, Mr. Satin and Ms. Betz counsel policyholders on a wide range of issues and have recovered billions of dollars, by settlement or judgment, on behalf of policyholder clients.

The views expressed in this article are those of the authors and do not necessarily reflect the views of McCarter & English or its clients.  The article is for informational purposes only and is not offered as legal advice as to any particular matter.  No reader should act on the basis of this article without seeking appropriate professional advice as to the particular facts and applicable law involved. subscribers can access the complete commentary, McCarter & English on the Continuing Debate Over the Breadth and Limits of the Exclusion for "Water Under the Ground Surface" in First-Party Policies. Additional fees may be incurred. (approx. 22 pages)

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