The Fifth Circuit Court of Appeals recently upheld a Texas district court decision to grant an insurer’s motion for summary judgment in an insurance coverage dispute. Bradford Realty Services, Inc. v. Hartford Fire Ins. Co., No. 21-11047, 2022 WL 1486779 (5th Cir. May 11, 2022) involved an insurance claim by an insured for damages to its property that appeared after a heavy rainstorm resulted in the pooling of rainwater on the property’s roof. The drains on the roof that would normally remove the rainwater were clogged, so it remained, entered the interior of the property, and caused damage.

The insured filed a claim, and the insurer (“Hartford”) denied coverage because the damage was caused by rain that did not enter the building through damage caused by the storm and therefore fell into the policy’s exclusion for damage caused by rain. The insurer then filed suit in federal district court, arguing that the policy’s rain exclusion did not apply and the “drain backup coverage” provision covered the loss. The parties filed competing motions for summary judgment, and the district court granted Hartford’s motion, dismissing the claim. The insured then appealed.

On appeal, the insured argued that the policy provided coverage for damage caused by water backing up from a drain, and the evidence showed that the drains on the roof were clogged such that water accumulated on the roof and eventually reached a “rooftop air handling unit” and leaked inside the building, causing damage.

The Fifth Circuit, applying substantive Texas law on contract interpretation, first stressed that the “drain backup coverage” provision states that the coverages provided in that section “are added unless otherwise indicated in the Property Choice Schedule[,]” and the “Property Choice” portion of the Policy contains the rain exclusion. In addition, the rain exclusion states that the limitations therein “apply to all policy forms and endorsement.” As a result, the drain backup coverage could not apply in light of the rain exclusion.

As for whether the “drain backup coverage” provision was instead an exception to the rain exclusion, as the insured argued in the alternative, the Fifth Circuit held that the plain, unambiguous language of the two listed exceptions to the rain exclusion only concerned losses that resulted from damage to the property’s roof or walls through which the rain entered, and that was not present here.

Finally, when considering whether the rain exclusion itself applied, the Fifth Circuit noted it must consider whether the pooled rainwater is “rain” or “water” under the policy. After noting that there was “no reservoir of precedent” to guide them and the “sprinkling” of caselaw dealing with similar rain exclusions did not address the precise issue before the court, the Fifth Circuit concluded it must make predict what the Texas Supreme Court might do with a case such as this one. The insured argued that water is only “rain” when it is actively falling from the sky and becomes “water” once it hits the roof, so the rain exclusion could not apply. In making this argument, the insured relied on a case in which rain was held to become “water” after it hit and pooled on the ground—not a roof like in this instance. In response, Hartford and the trial court relied on a case in which the rain exclusion would have been held to be meaningless if rain became water upon landing because water only damages property after it strikes a surface. The Fifth Circuit agreed with Hartford and the trial court and held that the damage in this case was caused by “rain” not “water.” According to the Fifth Circuit, to hold otherwise would render the rain exclusion meaningless because rain cannot damage anything when it is mid-air, only when it lands and “soaks, splashes or otherwise touches that thing” and “if rain becomes water on contact with a surface, then the rain exclusion excludes nothing.” Because Texas law requires every contractual provision to be given meaning, the Fifth Circuit held that the rain exclusion applies to the rainwater that was pooled on the roof of the property and caused the damage. As such, it affirmed the district court’s decision to grant summary judgment in favor of Hartford.

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