Last week, the Houston First Court of Appeals affirmed a trial court’s grant of summary judgment on all claims in favor of Liberty Mutual. The dispute in Tsai v. Liberty Mut. Ins. Co., No. 01-14-00677-CV, 2015 WL 6550769 (Tex. App.—Houston[1st Dist.] Oct. 29, 2015), arose out of a claim for water damage to the wood floors of the insureds home. In March of 2012, the Tsais noticed what they later described as “ridges” on the wood floors in the living room of their home. By August 2012, the damage had spread across the living room, and the wood flooring was separating. The Tsais made a claim with Liberty Mutual under their homeowners' policy regarding the damage to their wood floors. Liberty Mutual began an investigation to determine the source and the cause of the damage.

After eliminating a plumbing leak as the cause of the damage, Liberty Mutual retained an engineer to evaluate the damage and determine the cause and source of the water which had resulted in the flooring damage. The report from the engineering company observed that the wood flooring in the Tsais' living room “displayed an uneven appearance where the edges on the top of the board were higher than the top of the center of the boards, which is commonly referred to as a ‘cupped’ condition.”  The Tsais informed the engineer that in 2007 their neighbors to the north “installed a swimming pool, concrete patio areas, and gravel planters in areas of the north neighbors' yard, and a planter with shrubs were installed in the strip of land along the north edge/perimeter of the Tsai residence.” The report also stated that the neighbors that moved in around February of 2010 to the north watered their planter significantly. The engineering company ultimately concluded that the cupped appearance in the wood floors was caused by water migration from the planter.

The engineering company prepared a report of its findings, signed by two professional engineers. Both Liberty Mutual and the Tsais agreed with the findings in the report. Based on the findings, Liberty mutual denied the claim. Liberty Mutual's denial letter stated, “Based on the results of the engineer's report, we are unable to assist you with your homeowner's claim. Unfortunately, the policy does not cover damages resulting from surface water entering the home at ground level.” Liberty Mutual referred the Tsais to language in the insurance policy that excluded coverage for “water damage,” including damage from “surface waters.” The Tsais disagreed with Liberty Mutual's denial of coverage based on the water-damage exclusion. The Tsais sued Liberty Mutual and the neighbor, who had installed the planter. The Tsais asserted that Liberty Mutual had breached the insurance contract and had engaged in deceptive trade practices.

Liberty Mutual answered the suit and filed a motion for summary judgment. In the motion, Liberty Mutual argued that it had not breached the insurance contract as a matter of law because the claim was not covered by the policy because the claim fell within the policy's water damage exclusion. Liberty Mutual also claimed it was entitled to summary judgment regarding the extra-contractual claims. The Tsais responded to the motion for summary judgment and also filed their own motion for partial summary judgment. The Tsais asserted that their claim did not fall within the policy's water-damage exclusion. Alternatively, the Tsais asserted that their reasonable interpretation of the exclusionary language should be adopted because the exclusionary language is ambiguous.

The Court identified the language within the water-damage exclusion for damages caused by “surface water” as dispositive in this case.   The Court disagreed with the insured’s assertion that the damages were not caused by surface water or that the term was ambiguous. The Tsais argued three reasons why the water was not surface water: (1) the water was not “natural precipitation”; (2) the water was not diffused over the surface of the ground; and (3) alternatively, presuming it was surface water, it lost its character as surface when “it was absorbed by the mulch in the flower bed and drained into the Tsais' house.” The Court addressed all three arguments in turn and found that the water in this case was surface-water and excluded under the Policy.

Because the damages were not covered under the Policy, and the terms were unambiguous, the Court affirmed the grant of summary judgment in favor of Liberty Mutual and denying the insured’s motion. Because the surface-water issues were dispositive, the Court did not address the issue of exclusionary language for water below the ground.

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