Court Rules Policyholder Arguments Do Not Hold Water

Grinnell Mut. Reinsurance Co. v. Hubbs (Appellate Court ofIllinois, Third District, April 24, 2013)

This water resource/environmental coverage action arises from an underlying dispute involving the interference and damages from the divergence or obstruction of streams or surface water between landowners.  Specifically, plaintiff insurer brought a declaratory judgment action against landowners who alleged damages to crop land caused by the policyholder’s alleged alteration of the flow and level of surface and groundwater following the policyholder’s construction of a holding pond on the property. The insurer maintained that there was no issue of material fact that the damage to the cropland was caused by the policyholder’s construction of a weir (dam) to create a holding pond on their property had the effect of raising the water table on the adjacent property.  The increased elevation of the groundwater table caused flooding of a 21 acre tract of farmland. In deciding in favor of the insurer, the court noted that the applicable exclusion in the instant matter was clear and unambiguous as the policy excluded coverage for damages resulting from “divergence or obstruction of stream or surface water” or property damage resulting “from interference with the natural drainage to or from the land of others.” The policyholder maintained that there was no proof in the record that the construction of the weir and retention pond resulted in damage to that adjacent property and the term “drainage” in the exclusion was ambiguous since it could be read so as to apply only to surface drainage and not subsurface drainage.  The court dismissed these arguments noting that in Illinois, the term “drainage” applies to both surface and subsurface drainage patterns.  Thus, as a matter of law, the term “drainage” in the policy exclusion must be read to include both surface and subsurface drainage. The trial court further found that no genuine issue of material fact existed regarding whether the construction of the weir and retention pond caused a substantial elevation of the groundwater table on the property which, in turn, impeded the subsurface flow of water and caused 21 acres of farmland to flood. Moreover, there was nothing in the record to indicate that the land at issue was ever flooded prior to the construction of the weir and retaining pond. Finally, the record clearly established that construction of the weir and retention pond interfered with the natural drainage on Mercer’s land and resulted in damage to the property. Thus, the court ruled that the insured’s response, that the term “drainage” does not include “subsurface drainage,” was contrary to law.

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