Zurich American Insurance Co. v. Medical Properties Trust, Inc., No. 23-1167 (1st Cir. 2023)
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In this case, the United States Court of Appeals for the First Circuit had to decide whether rainwater that accumulated on a parapet roof one or more stories above the ground is considered "surface waters" under Massachusetts law for the purposes of the insurance policies in question. This determination was crucial for deciding whether the insureds, Medical Properties Trust, Inc. (MPT) and Steward Health Care System LLC (Steward), were subject to coverage limitations on "Flood" damage in the policies issued by Zurich American Insurance Company (Zurich) and American Guarantee and Liability Insurance Company (AGLIC).
The interpretation of "surface waters" posed a novel issue of Massachusetts law that had not been previously addressed by the Massachusetts Supreme Judicial Court (SJC). The court decided to certify the issue to the SJC as the existing case law did not provide a clear answer and the resolution may require policy judgments on applying Massachusetts law to this key insurance coverage issue.
The case arose from a situation where Norwood Hospital Facility, a building owned by MPT and leased to Steward, suffered significant damage after severe thunderstorms. Rainwater accumulated on the hospital's roof and a second-floor courtyard, eventually seeping into the hospital's upper floors. Both Zurich and AGLIC, in their initial evaluations, determined that water damage in the hospital's basement was caused by "Flood," and would be subject to the policies' respective coverage limits. However, the insurers later characterized all the water damage, including that from the roof, as "surface water" and subject to the "Flood" coverage limits.
The court concluded that whether rainwater pooled on a parapet roof constitutes "surface waters" in the policies' "Flood" definition is determinative of this interlocutory appeal. Therefore, the court certified the issue to the SJC for its consideration.
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