Texas – Water Damage – Natural Source

INTRODUCTION

In Texas, it is likely the exclusions for “water below the surface” and “surface water” are limited to losses from natural sources, unless the policy states otherwise.

Under language like that found in the 4/91 edition of the ISO HO-3 form, most courts from other jurisdictions have limited the exclusions for flood, surface water, etc., and water below the surface of the ground, to water from natural sources. The natural source limitation should not apply to the sewer backup provision, since the wording of this part of the water damage exclusion, unlike the “flood, surface water” and “water under the ground surface” provisions, clearly contemplates exclusion of water damage caused by water flowing out of a man-made drainage system.

Note that in the 2000 edition of the ISO HO 00 03 form, it states that the water damage exclusion applies whether caused by or resulting from “human or animal forces.” This was changed beginning in ISO’s 2011 edition of the the HO 00 03 form to, “regardless of whether” the loss is caused by “an act of nature or is otherwise caused.” Based on these additions, it appears that the natural source rule should no longer be relevant. However, note also that ISO has specified that the exclusions for surface water and water below the surface do not apply to loss by water covered under the following three provisions:

(a) the accidental discharge peril;

(b) the exception to the mold exclusion; or

(c) the tear out exception to the wear and tear exclusions.

Therefore, although the newer water damage language,  beginning in the HO-3 2000 form, makes the natural source rule irrelevant in many cases, the water damage exclusions will not apply to the loss by water that is covered under these three provisions.

For a general discussion of the Natural Source Limitation as well as relevant language contained in many policies, see Water Damage Natural Source Introduction.

DISCUSSION

In Texas, the natural source limitation has been applied by the courts to the water below the surface of the ground exclusion. Note, however, that there are earlier decisions that did not reach this conclusion and are, therefore, probably not binding authority.

Air conditioner Leak (not limited by the natural source rule) — Water below the surface exclusion applied where damage was caused by water that leaked from an air conditioning unit into the ground around the foundation. Twin City Fire Ins. Co. v. Guthrie, 1968 Fire & Casualty Cas. (CCH) 721 (Tex. App. 1968).

Water Line Break (not limited by the natural source rule) — Water below the surface exclusion applied to underground water line leakage. Park v. Hanover Ins. Co., 443 S.W.2d 940 (Tex. App. 1969). However, the Supreme Court of Texas in Adrian and Raffkin, discussed below, did not adopt this decision.

Pedestrian Tunnels and Parking Garages (not limited by the natural source rule) — Surface and floodwater did not change its character when it entered pedestrian tunnels and the lower level of the insured’s office building. Hirsch & Westheimer, P.C. v. Northern Ins. Co. of New York, (USDC S.D. Tex. 2004) [reviewed at PLRB, Prop. Ins. L. Rev. 6675 (2004)].

Water that begins on land as flood or surface water, follows the law of gravity, and flows downward into man-made underground structures, such as a parking garage and pedestrian tunnel, does not lose its character as excluded flood or surface water. Valley Forge Ins. Co. v. Hicks Thomas & Lilienstern, 174 S.W.3d 254 (Tex. App. 1s Dist. Houston 2004) [reviewed at PLRB, Prop. Ins. L. Rev. 6806 (2005)].

Water on Patio (not limited by natural source rule) — A surface water exclusion precluded coverage for damage caused when, over the course of several years, rainwater collected on the insured’s patio, which was constructed one foot above the ground, and ran off into the insured’s home. Although the patio was a raised, manmade structure, the water was still surface water for the purposes of the exclusion. The court rejected the insured’s arguments that the exclusion either only applied to water collecting on the surface of natural ground or, in the alternative, that even if it applied to concrete and asphalt structures on the surface, such as patios, roads, and driveways, it should not apply to a structure raised one foot about the surface. Crocker v. American National General Ins. Co., 211 S.W.3d 928 (Tex. App. 2007) (Tex. App. Dallas 1/05/07) [reviewed at PLRB, Prop. Ins. L. Rev. 7227 (2007)].

Ground Water/Humidity (limited by the natural source rule) — Water absorbed into the ground was no longer surface water. Transamerica Ins. Co.v. Raffkind, 521 S.W.2d 935 (Tex. App. 1975) (natural source limitation applied in dicta to the water below the surface exclusion). Thus, when it flowed into the ground and also evaporated by an A/C system, the water was no longer surface water.

Water Released from Bayou (not limited by natrual source rule) — Salcetti v. AIG Prop. Cas. Co., No. CV H-19-1184, 2021 WL 1345527, — F.Supp.3d — (S.D. Tex. 3/26/21) (U.S. District Court for the Northern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10959 (2021)]. Water that overflowed from a bayou and entered the policyholders’ home was excluded flood, even if much of it came from water impounded in reservoirs, which the Army Corps of Engineers released as part of its emergency flood control operations. The fact that the water may have spent some time impounded in the Houston reservoirs, before it was released upstream from the Bayou, did not make it something other than water that overflowed from a body of water when it overflowed from the Bayou.

“Considering that the policy itself places surface water in conjunction with ‘flood, waves, tidal water or tidal wave and overflow of streams or other bodies of water’, we hold that the term surface water is used in the policy to mean natural precipitation coming on and passing over the surface of the ground until it either evaporates, or is absorbed by the land, or reaches channels where water naturally flows. Applying the definition to the accepted facts in the case at bar, the water that caused the insured’s damage was not surface water. None of the damage was attributable to the water while it was upon or passing over the surface of the ground; all of the damage was caused by or resulted from the water after it had lost its status as surface water by being absorbed into the ground.”

Consequently, any damage caused to insured premises when run-off water, that had ponded next to the home, ran through ventilation or weep holes in the brick veneer into the space between the veneer and slab foundation and saturated the soil to the point that the water seeped into non-water tight heating-air conditioning ducts, which had been placed in the ground under concrete foundation, with result that water was discharged into house in form of vapor, was not caused by “surface water” within meaning of exclusion clause of homeowner’s policy for loss caused by flood, surface water or tidal water.

Water Main Leak (limited by the natural source rule) — Water below the surface exclusion did not apply to damage to a warehouse caused by the rupture of an underground municipal water main, from which the water passed beneath the concrete foundation and caused a gap to form between the concrete slab and its supporting soil. Adrian Assocs., Gen. Contractors v. National Sur. Corp., 638 S.W.2d 138 (Tex. App. 1982) [reviewed at PLRB, Prop Ins. L. Rev. 1278 (1982)], reh’g denied, 650 S.W.2d 67 (Tex. 1983). Natural source limitation applied. The court followed Raffkind. The Texas Supreme Court, in its opinion denying the rehearing of the case, acknowledged the conflict between the appellate court holdings in Adrian and Park, and expressed its approval of the appellate court holding in Adrian.

Sprinkler Combined With Rain in Flower Pot (New language – not limited by natural source rule) — Tsai v. Liberty Mutual Ins. Co., No. 01-14-0077, 2015 WL 6550769 (Tex. App. – Houston (1st Dist.) 10/29/15) (Texas Court of Appeals – Houston, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9286 (2015)].  A “surface water” exclusion applied to water that originated as water that overflowed from a planter holding shrubs, which a neighbor installed on the boundary between his property and the policyholders’ property. Excess water from the neighbor’s sprinkler system accumulated in the mulch at the base of the shrubs, and at some point, combined with rain. When the water accumulated to the height of the edging that surrounded the shrubs, it flowed onto the ground and migrated to the policyholders’ home, where it entered next to the foundation and caused damage to the policyholders’ wood floors. Even if the sprinkler system was the primary source of the water, the surface water exclusion would preclude coverage because: (1) the policy expressly stated that the exclusion applied to water damage “caused by or resulting from human or animal forces or any act of nature”; and (2) “natural” rainwater contributed to the loss, and thus the exclusion would apply as a result of its anti-concurrent causation preface, regardless of whether water from the sprinkler system was surface water. The water also did not lose its character as surface water when it accumulated in the mulch surrounding the shrubs, flowed onto the ground, and migrated to the policyholders’ home.

Water Supply to Fire Sprinkler System — Praetorian Ins. Co. v. Arabia Shrine Ctr. Houston, No. 4:14-CV-3281, 2016 WL 687564 (S.D. Tex. 2/19/16) (U.S. District Court for the Southern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9381 (2016)]. A water “under the ground surface” exclusion precluded coverage for damage caused by more than one million gallons of water from a burst underground pipe that supplied water to the fire sprinkler system in the insured building.

PLEASE NOTE: The court in Arabia Shrine did not indicate whether the Water Below the Surface exclusion applied whether caused by an act of nature or is otherwise caused. However, even in the absence of such language the court might have reached its conclusion not to apply the natural source rule because there was an anti-concurrent causation preface before the water damage exclusions. When the preface states, as it did in Arabia Shrine, that an exclusion for water under the surface applies “regardless of any other cause or event that contributes concurrently or in any sequence to the loss,” arguably it means that there is no coverage regardless of whether the water came from natural or manmade sources.

Water Following Gravity into Conduit (Not Limited by Natural Source Rule) — Safeco Ins. Co. of Indiana v. Moss, No. 03-16-00879-CV, 2017 WL 2856750 (Tex. App. – Austin 6/29/17) (Court of Appeals of Texas, Austin, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9778 (2017)]. Rainwater was still surface water by the time it entered the insured home. The undisputed evidence established that natural precipitation flowed along the surface of the ground and, as a result of gravity, eventually made its way into a man-made structure, an electrical conduit, and into the home. Thus, the evidence showed that the water originated as surface water and did not co-mingle with non-surface water or change in form before entering the home. Following Valley Forge, above.

The Moss court also held that the anti-concurrent causation peface would have precluded coverage in any event because surface water indirectly caused the damage.

Water From Frozen Lawn Irrigation Line (Not Limited by Natural Source Rule). Laur v. Safeco Ins. Co. Ind., No. 23-10315, 2024 U.S. App. LEXIS 14576 (5th Cir. (Tex.) 06/14/2024) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. (2024)]. Water Damage Exclusions for water below the surface, surface water, and flood applied to the homeowners’ basement flooding resulting from the frozen lawn irrigation line.  The water that flowed from the partially underground irrigation line indisputably traveled on the surface and below the surface to flood the basement, triggering the water damage exclusion.  The natural source rule did not apply where the policy language unambiguously stated the exclusion applied regardless of the source of the damaging water.

This discussion is based on the most commonly used forms and is updated to reflect recent changes. However, the discussion cannot discuss all variations in policy forms. The standard forms and form language change based upon introduction of new editions. Also, many companies use manuscript forms that differ from standard forms. Furthermore, certain states have mandatory endorsements or language that must be incorporated or read into a form.