Rare bit of sunshine in stormy days for flailing Steward Health Care: Court sides with it in dispute over how much insurers should pay to help rebuild flood-ravaged Norwood Hospital

The Supreme Judicial Court ruled today that if it had its way, it would rule in favor of collapsing Steward Health Care System and its property-owning spinoff MPT in a case involving the amount of insurance money they should get for rebuilding Norwood Hospital, destroyed by flooding in 2020.

The court's ruling is actually an opinion to be forwarded to the US Court of Appeals for the First Circuit in Boston, which will make the ultimate decision in resolving the legal issues related to just how much two insurance companies have to pay Steward and the hospital's property owner to rebuild the hospital. That court asked the SJC, the state's highest, for its advice on Massachusetts insurance law related to flooding damage.

At issue in the case is the definition of the phrase "surface water."

The hospital's policies limited its maximum payout to $100 million for damage caused by a "flood" of "surface water." Steward agreed the lower part of the hospital was destroyed by surface water dropped on the town by a particularly vicious thunderstorm, but argued that the rain that fell on the hospital's roofs, which eventually gave way, causing flooding in the hospital's upper floors, was not "surface water" because it never reached the ground. Therefore, it and its property-holding spinoff should be reimbursed another $100 million or so under another part of the policies to help it rebuild the upper floors.

The insurers argued the roofs are themselves "surfaces" and so any rain that fell on them was "surface water," therefore, checkmate.

A judge in federal court ruled in favor of the insurers, but Steward appealed, which led to today's advisory by the SJC.

The SJC concluded that legally, in both Massachusetts and across the country, the question of whether water on a roof is "surface water" remains up in the air. In Massachusetts, at any rate, any insurance questions that have ambiguous resolutions have to be decided in favor of the policy holders, so if the federal court wants to apply Massachusetts law, it should rule in favor of the hospital, the state court said.

The court began its analysis with further details of the arguments by the two sides:

MPT and Steward essentially contend that the plain meaning of "surface waters" is waters on the surface of the earth -- that is to say, water at ground level or on a ground-level surface. The flood provision's reference to "waves, tides, . . . [and] the rising, overflowing or breaking of boundaries of . . . bodies of water" further supports that interpretation. The listed terms all describe water on the ground or moving from a body of water or watercourse generally understood to be waters existing on the surface of the earth. See Krusell, 485 Mass. at 440 ("Words are, at least in part, defined by the company they keep"). Surface waters, in their view, are not merely waters accumulating on surfaces. The two words cannot be so separated.

The insurers, by contrast, contend that the plain meaning of "surface waters" is waters naturally accumulating on surfaces, not just waters accumulating on the surface of the earth. Their interpretation aligns with a literal interpretation of the words "surface waters," as well as the absence of the particular words "surface of the earth" or "ground" in the definition of "Flood." The introductory clause's language of "inundation of normally dry . . . structure(s) caused by . . . surface waters" also supports this interpretation, as the water on the surface of the roof inundated the structures here. Furthermore, the insurers rely on common-law cases defining surface water to include water overflowing from roofs. Finally, rain accumulating on the ground and on a roof from the same storm would appear to be difficult for a reasonable insured to distinguish in this context. In both circumstances, an unusual and rapid natural accumulation of rainwater is inundating a structure.

The court then researched existing case law in both state and federal courts in Massachusetts and found what might be conflicting rulings on whether water on a roof is, in fact, "surface water." Could rulings in other states provide some clarity? Nope:

Our review of the case law outside of Massachusetts also reveals no "consistent interpretation" of whether surface waters include rainwater accumulated on a roof. ... As a leading treatise has recognized, "there are conflicting views [among courts] as to whether damage from water that has collected on a roof from precipitation is water damage from rain or from surface water."

And so:

In sum, we conclude that it is ambiguous whether rainwater accumulation on roofs constitutes "surface waters" within the meaning of the policies. In evaluating such accumulation, the term "surface waters" as used in the present policies is susceptible to two meanings, and reasonably intelligent persons could differ as to which meaning is the proper one. See Vermont Mut. Ins. Co., 490 Mass. at 164-165.

Therefore:

Rainwater that lands and accumulates on either a building's second-floor outdoor rooftop courtyard or a building's parapet roof does not unambiguously constitute "surface waters" under Massachusetts law for the purposes of the policies at issue in this case. We also report that any such ambiguity as to the intended meaning of the words must be resolved against the insurance company that employed them and in favor of the insured.