Anti-Concurrent Causation Clause Renders “Status” Analysis in Surface Water Exclusion Largely Immaterial
Unfortunately for many homeowners recovering from Hurricane Harvey-related flooding, most Texas homeowners’ policies will not provide coverage for their claims. Damage caused by floods and surface water is excluded regardless of any other contributing cause of the loss. This was not always the case. In State Farm Lloyds v. Marchetti, 962 S.W.2d 58, 61 (Tex. App.–Houston [1st Dist.] 1997, pet. denied), the Court ruled that a surface water or flood exclusion did not apply to damage to a house resulting from flood waters backing up into an interior plumbing system and overflowing to do interior damage. The Houston First Court of Appeals held that the “fact that excessive surface water may have initiated the chain of events which led to [the] loss is immaterial” because the loss resulted directly from “water (and sewage) after it had lost its status as surface water by flowing into underground sewage lines.” Id. Marchetti signaled to carriers that what is important in applying the surface water exclusion is the status of the water when it actually causes the loss.
A recent case highlighted the fact that a change in most homeowners’ policies renders Marchetti’s “status” analysis dead letter. In Safeco Ins. Co. of Indiana v. Moss, 03-16-00879-CV, 2017 WL 2856750, at *4 (Tex. App.—Austin June 29, 2017, pet. filed), rainwater damaged a home after it backed up and flowed into the interior through electrical conduit. The Austin Court of Appeals distinguished Marchetti on grounds that the exclusion there did not have a “lead-in” anti-concurrent causation clause, present in the Moss policy and widely used in standard Texas homeowners’ policies, which provides the loss is excluded whether it is “caused directly or indirectly” by the excluded peril, i.e., flood or surface water. Id. slip op. at *4. The clause also provided the loss “is excluded regardless of the cause of loss or any other cause or event contributing concurrently or in any sequence to the loss”. Id. slip op. at *3. Under the anti-concurrent causation clause, the Austin Court held, the “status” of the water at the time it causes the loss, the key in Marchetti, is not material to coverage where the water originated as surface or flood water. Id. slip op. at *4.
Note that the Moss court advanced this reasoning as an alternative holding after first holding that surface water that collects and flows through a man-made structure, such as electrical conduit, without commingling with non-surface water, such as sewage water, does not change its form or status to avoid the exclusion. 2017 WL 2856750, slip op. at *4. Due to widespread use of the anti-concurrent causation clause in standard Texas policies, however, the alternative holding appears to swallow the first. Thus, for example, even if, unlike Moss, the rainwater collects and backs up into an interior plumbing system, commingling with sewage or other non-surface water, if the anti-concurrent causation clause is present, the carrier has a strong argument the exclusion applies despite the change in status of the water from surface to non-surface. Thus, Moss holds the clause means what it says, precluding coverage regardless of sequence if the water that ultimately causes the loss originates as surface or flood water. Under most standard policies that contain the anti-concurrent causation clause Marchetti’s “status” analysis is largely inapplicable.