SDV Insights

Safeguarding Coverage Integrity: Vigilance in the Face of Insurance Backtracking

In a lawsuit resulting from Zurich American Insurance Company (“Zurich”) and American Guarantee and Liability Insurance Company’s (“AGLIC”) sudden change in coverage position, the First Circuit recently certified to the Massachusetts Supreme Judicial Court the question of whether rainwater accumulating on a roof meets the definition of ‘surface waters’ under Massachusetts law. Zurich and AGLIC’s conduct in the case of Zurich Am. Ins. Co. v. Medical Properties Trust, Inc. highlights how important it is for policyholders to remain vigilant during the adjustment of their claims.

On June 28, 2020, severe thunderstorms in Norwood, Massachusetts caused significant damage to the Norwood Hospital Facility (“Hospital”), owned by Medical Properties Trust, Inc. (“MPT”) and leased to Steward Health Care System LLC (“Steward”). The storms caused flooding in the Hospital's basement and water accumulation on the roof and second-floor courtyard, eventually seeping into the upper floors. MPT sought coverage from Zurich, and Steward sought coverage from AGLIC, their respective property insurers.  

The Zurich policy covers "flood" as a cause of loss subject to a $100 million sublimit of the policy’s total limit of $750 million. The AGLIC policy covers "flood" as a cause of loss subject to a $150 million sublimit of the policy’s total limit of $850 million . Both policies define "flood" as a general and temporary condition of partial or complete inundation of normally dry land areas or structures caused by the unusual and rapid accumulation or runoff of surface waters. The policies also cover “storm damage” as a cause of loss, which is not subject to a sublimit. In relevant part, “storm damage” is defined as water intrusion caused by wind-driven rain and/or overflow of roof drains and parapet flashing.

Initially, MPT and Steward submitted a claim for the loss without knowledge of the extent of the damage. In response to the initial claim, Zurich and AGLIC recognized "flood" damage in the basement but attributed upper floor damage to "storm damage.” Thereafter, MPT submitted a proof-of-loss to Zurich for $100 million for “flood” damage to the basement and $121 million for “storm damage” to the upper floors, and Steward submitted a proof-of-loss to AGLIC for $112 million for “flood” damage to the basement and $90 million for “storm damage” to the upper floors. Once Zurich and AGLIC realized the magnitude of the loss, they revised their initial evaluations and reclassified the damage to the upper floors as “flood” damage, so that MPT’s entire claim (not just the damage to the basement) was capped by Zurich’s $100 million flood sublimit and Steward’s entire claim was similarly capped at AGLIC’s $150 million flood sublimit.   

As a result of Zurich and AGLIC’s attempt to limit their exposure by reclassifying the damage, MPT and Steward filed a lawsuit against Zurich and AGLIC, alleging that the upper floor damage was caused by “storm damage” and should be separated from the damage to the basement caused by “flood.” The issue of whether the event of rainwater accumulating on a parapet roof qualifies as "surface waters" and is, therefore, considered to be “flood” damage and not “storm damage” under Massachusetts law, was certified to the Massachusetts Supreme Judicial Court ("SJC"). Parties are awaiting the SJC’s decision, where over $211 million in coverage hangs in the balance. 

This case highlights important actions policyholders should take during a claim:

  1. When faced with a significant loss, get coverage counsel involved immediately, no matter the position the carrier initially takes.
  2. Carefully review (or better yet, have coverage counsel review) responses to requests for information from the insurer.
  3. Establish an ongoing dialogue with the adjuster and make certain that expectations concerning the claim are clear.

Zurich and AGLIC’s attempt to revise their initial coverage assessments upon receipt of the insureds’ proofs of loss is indicative of broader trends across the industry, where insurers are limiting their exposure in new, disingenuous ways. This case highlights the importance of safeguarding against unfair business practices and advocating for scrutiny of carriers to protect policyholders.

Watch this space for additional insight into this matter and its implications on insurance law. For more information on these coverage issues, please contact William Phillips at


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