Matthew and Sondra Knowles owned a five story rental property building. Nova insured the building.
The Nova policy contained an exclusion for water damage, but an amendatory endorsement deleted the exclusion. (This is why I can't give advice about coverage under a policy unless I have the complete policy.) An additional endorsement added flood coverage for loss attributable to "flood, meaning a general and temporary condition of partial or complete inundation of normally dry land due to the unusual or rapid accumulation or runoff of surface waters from any source."
The policy also contained a "rain limitation" which excluded coverage if a loss suffered to the interior of the building was caused by or resulted from rain, whether driven by wind or not, unless the building first sustains damage by a covered cause of loss to its roof or walls through which the rain enters.
A tropical storm caused a significant amount of water to accumulate of the roof of the building. The water overwhelmed the rooftop drain and pooled on the roof, eventually leaking through the building's two skylights, resulting in property damage.
Nova denied the claim in part on the basis of the rain limitation.
Due to the financial losses, the Knowles defaulted on their mortgage and Fidelity took title to the property. Fidelity then brought an action against Nova.
In Fidelity Co-operative Bank v. Nova Casualty Co., __ F.3d __, 2013 WL 4016361 (1st. Cir. 2013), the United States Court of Appeals for the First Circuit found that the rain limitation did not exclude coverage.
The court applied the "efficient proximate cause test" or the "train of events test" set forth in Jussim v. Mass. Bay Ins. Co., 415 Mass. 24 (1993). Under that test, if the efficient proximate cause of a loss is an insured risk then the policy provides coverage even if the final form of the property damage, produced by a series of related events, appears to take the loss outside the terms of the policy. The court noted that the efficient proximate cause test applies to any policy that does not have an anti-concurrent causation clause.
Nova's experts had determined that the blocked or inadequate roof drain caused water to accumulate of the roof, flooding it. Thus, the blocked or inadequate drain set in motion a train of events that caused the interior water damage. "The failure of the drain must properly be determined the efficient proximate cause of the damage, not the rain." The court found that the blocked or inadequate roof drain was a covered loss under the policy, so that the policy provided coverage for the damages.