Appeals court defines “surface water” in examining water
damage exclusion clause
A homeowner's insurance policy excluded coverage for "surface
water" damage and also contained an "anti-concurrent
cause" provision at odds with Wisconsin's "independent
concurrent cause" rule. The court defined "surface water"
in ruling on the case, but did not decide if the independent concurrent
cause rule can co-exist with anti-concurrent cause provisions.
By Joe Forward, Legal
Writer, State Bar of Wisconsin
22, 2010 – In a highly intriguing case in which a homeowner
suffered a loss due to heavy rains in 2008, the Wisconsin court of
appeals defined, for the first time, how the term “surface
water” impacts coverage under an insurance policy with a water
damage exclusion clause.
Family Mutual Insurance Co. v. Schmitz, 2010 AP16 (Oct. 20,
2010), the District II appeals court – in an opinion by Chief
Judge Richard Brown – reversed a circuit court ruling that sided
with the plaintiffs, homeowners James and Jody Schmitz (Schmitz).
Heavy rains hit the Milwaukee area in 2008. At the time, Schmitz was
constructing an addition to his home that required excavation for a
basement underneath the addition. During heavy rainfall, water came
through the excavated area and “washed soil out from underneath
the footings of the home,” causing the foundation to collapse.
The homeowner’s insurance policy included supplementary coverage
if collapse was caused by “use of defective … methods of
construction.” But the policy also excluded losses due to flooding
or “surface water” damage or earth movement.
In addition, the policy included an “anti-concurrent clause
exclusion,” which determined that losses due to water damage or
earth movement were excluded “regardless of any other cause or
event contributing concurrently or in any sequence to the
Schmitz argued that he failed to build a retaining wall to block rain
flow, and this failure was a defective method of construction that was
covered by the policy. He also argued the water damage exclusion did not
apply, regardless of the anti-concurrent clause exclusion,
“because the water that contributed to the collapse of the
house” was rainwater, not surface water.
The circuit court granted summary judgment to Schmitz, and American
What is surface water?
On appeal, Schmitz argued that the water damage exclusion – no
coverage for damage caused by surface water – did not apply
because “the water which caused the damage was rain water,”
not surface water. Alternatively, Schmitz argued that “any water
that was surface water lost its character as such when its course was
altered by a trench on his property.”
Noting that Wisconsin case law does not define what constitutes
“surface water,” the appeals court adopted the following
definition as set forth by the North Dakota Supreme Court:
[Surface water is] water which is derived from falling rain or melting
snow, or which rises to the surface in springs, and is diffused over the
surface of the ground, while it remains in such a diffused state, and
which follows no defined course or channel, which does not gather into
or form a natural body of water, and which is lost by evaporation,
percolation, or natural drainage.[i]
To support its “rainwater” theory, Schmitz cited two cases
in which homes were damaged by rainwater. But the court noted that in
those cases, the rain that damaged the homes “entered the house
without ever touching the ground.”
“Neither of these cases supports the proposition that water on
the ground is not surface water merely because it once fell out of the
sky as rain,” the chief judge wrote. “To limit the
definition of surface water to water that does not originate as rain
would leave the term surface water without much meaning.”
Thus, the court held that once the rain “fell to the ground, it
became surface water” and thus American Family’s water
damage exclusion applied.
The “defined channels” exception?
Even if it was surface water, the water lost its character as such
“when its course was affected by a ‘trench’ on his
property,” Schmitz argued.
To support this argument, Schmitz pointed to the Colorado Supreme Court
case of Heller v. Fire Insurance Exchange, 800 P.2d 1006 (Colo.
1990). In that case, the court held that water loses its character as
“surface water” if diverted by humanly created trenches, or
But the court declined to adopt the “defined channels”
exception. Adopting such a rule, the court explained, “would make
a surface water exclusion virtually useless.”
Independent concurrent cause rule vs. anti-concurrent cause
Under Wisconsin’s “independent concurrent cause”
rule, the court explained, “where there are multiple causes for a
loss, some of which are insured and others of which are excluded, the
insured risk prevails over the excluded risk.”
But the American Family insurance policy included an
“anti-concurrent cause provision,” which determined that
losses due to water damage were excluded “regardless of any other
cause or event contributing concurrently or in any sequence to the
American Family asked the court to adopt a rule “whereby the
anti-concurrent cause provision operates to preclude coverage whenever
an excluded risk contributes to a loss, regardless of any other
contributing causes.” Such a rule would allow insurance companies
to combat Wisconsin’s independent concurrent cause rule with an
anti-concurrent cause provision. The court declined.
“We need not decide the effect of the anti-concurrent cause
provision on the independent concurrent cause rule in this opinion
because even using the independent concurrent cause analysis, Schmitz
loses this argument,” Chief Judge Brown wrote.
The court explained that the independent concurrent cause rule does not
apply unless the covered cause (defective method of construction, i.e.,
no retaining wall) provides the basis “for a cause of action in
and of itself and must not require the occurrence of the excluded risk
to make it actionable.”[ii]
“The covered risk (defective methods of construction) clearly
would not have been actionable without the occurrence of the excluded
risk (surface water washing out the earth underneath the home),”
the court explained. “Defective methods of construction did not
really cause the damage so much as it caused a failure to
[i]State ex rel
State Fire and Tornado Fund of the North Dakota Insurance Department v.
North Dakota State University, 694 N.W.2d 225, 230 (N.D. 2005)
(citing 5 Appleman Insurance Law and Practice section 3145 at 463
[ii]Citing Smith v.
State Farm Fire & Cas. Co., 192 Wis. 2d 322, 531 N.W.2d 376
(Ct. App. 1995).