§ 3.19 Exclusions - Water Damage (including Flood) - Causation

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 3.19 Exclusions - Water Damage (Including Flood) - Causation

In M&M Corporation v. Auto-Owners Insurance Co., 390 S.C. 255, 701 S.E.2d 33 (2010), the South Carolina Supreme Court accepted certification of the following question from the federal district court:

III. Under an all-risk Commercial Property Policy of insurance, does "flood water" encompass water discharged from a stormwater collection system in concentrated form, pooled, and that thereafter enters a building?¹¹⁶

This question was answered no and the Court considered that "flood waters" would be "those waters that breach their containment, either as a result of a natural phenomenon or a failure in a man-made system, such as a levee or a dam."¹¹⁷ The Court explained that an element of fortuity was required and held that the water at issue was "not flood water because it did not breach containment, but instead it was deliberately channeled and cast upon Plaintiff's land."¹¹⁸

In a more recent decision, the federal district court considered the following exclusion to determine that the policy did not afford coverage for damage resulting from excessive rainfall that occurred in South Carolina on October 4, 2015:

do[es] not cover loss to covered property caused directly or indirectly by any of the following, whether or not any cause or event contributes concurrently or in any sequence to the loss:
...
Water damage, meaning:
(a) regardless of the cause:

(1) flood . . . .

The policy also stated: "Flood - Flood damage is not covered under your policy." ¹¹⁹ The plaintiffs filed suit against the insurer contending it breached the policy by not providing coverage and alleged the exclusion did not apply and specifically stated:

[The exclusion] does not apply to the circumstances leading to Plaintiffs' losses to their home[,] and payment should be made pursuant to the terms of the homeowner's policy in effect. The damage to the home was the direct result of broken manmade dams due to failed construction and lack of maintenance; the negligence of third parties caused or greatly contributed to the damage to Plaintiffs' home. It was not the result of a flood contemplated within the language of the Exclusion for water damage.¹²⁰

In addressing the application of the exclusion, the court explained that "although the term 'flood' is not defined by the policy, the parties agree that the South Carolina Supreme Court has provided a controlling definition of the term in M&M Corp."¹²¹ The court determined that "[t]hese waters, as the complaint described them, fit precisely into the definition of flood waters that is provided by M&M Corp." and "there is no ambiguity in the term 'flood,' and the policy expressly excludes coverage for water damage caused by the circumstances alleged in Plaintiff's complaint."¹²² The court stated:

In sum, the court concludes that the terms of the policy unambiguously exclude coverage for water damage caused by flood, a term which, according to South Carolina law, encompasses the circumstances alleged by Plaintiffs'

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