Massachusetts’ highest court said Tuesday that property damage to a hospital resulting from the accumulation and infiltration of rainwater on second-story rooftops is not subject to flood sublimits.
The Supreme Judicial Court of Massachusetts ruled in Zurich American Insurance Co. et al. v. Medical Properties Trust Inc. et al. that the phrase surface water in the flood limits provision of policies issued by Zurich and its subsidiary American Guarantee and Liability Insurance Co. was ambiguous.
Zurich and American Guarantee issued commercial property policies to Medical Properties Trust, the owner of Norwood Hospital in Norwood, Massachusetts, which was leased by Steward Health Care System LLC.
American Guarantee’s policy had a coverage limit of $850 million and a $150 million sublimit for flood, and Zurich’s policy had a coverage limit of $750 million with a $100 million sublimit, court records show.
A severe thunderstorm and heavy rain in June 2020 caused significant damage to Norwood Hospital, and Medical Properties and Steward Health Care submitted claims to the insurers. Although the parties agreed that damage to the hospital’s basement was subject to the flood sublimits, the insurers said damages caused by water that collected on two sections of the hospital’s roof and leaked into the building were caused by “surface water” and also fell within the flood sublimits.
Medical Properties and Steward, which had submitted claims exceeding $200 million, sued the insurers in federal court in Boston. The parties filed competing motions for partial summary judgment, and the judge agreed with the insurers that the water that seeped through the roof was surface water.
The policyholders appealed to the 1st U.S. Circuit Court of Appeals, which certified a question to the high court, which ruled that the phrase surface water in the policies’ definition of flood was ambiguous and, therefore, should be interpreted in favor of the policyholders.
Representatives for the parties did not respond to requests for comment.
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