v. United States Automobile Association

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.

SUMMARY
November 14, 2019

2019COA169

No. 18CA1374, 18CA2005, Morley v. United States Automobile
Association — Insurance — Property and Casualty Insurance —
Homeowner’s Insurance — Exclusions — Surface Water

In this insurance coverage case, a division of the court of

appeals considers whether a “surface water” exclusion in an all-risk

insurance policy precludes the plaintiffs’ claims as a matter of law

when the plaintiffs allege that the interior of their home was

damaged when precipitation entered the home directly through

holes in the roof caused by hail damage. Applying the

unambiguous definition of “surface water” articulated in Heller v.

Fire Insurance Exchange, 800 P.2d 1006, 1008 (Colo. 1990), the

division concludes that when precipitation falls or leaks into the

insured’s dwelling through holes in a roof damaged by hail (or some

other covered peril) — rather than running off the roof and behaving
as one would expect water intercepted by a roof to behave — it does

not fall within the plain meaning of the term “surface water”

because it was never water “lying or flowing naturally on the earth’s

surface.”

In reaching its conclusion, the division distinguishes this case

from Martinez v. American Family Mutual Insurance Co., 2017 COA

15. While the division agrees with Martinez that man-made

surfaces can intercept precipitation and generate surface water, it

rejects the insurer’s contention that Martinez stands for the broad

proposition that the moment water falling from the sky touches a

roof or other man-made surface it becomes “surface water.”

Because the district court erred in concluding, as a matter of

law, that the plaintiffs’ claims are barred by the surface water

exclusion in their policy, the division reverses the district court’s

entry of summary judgment and its award of costs in favor of the

insurer.

Further, because there are genuine disputes of material fact,

the division declines to affirm the district court’s entry of summary

judgment on the insurer’s alternative argument that a fraud

exemption in the policy precludes the plaintiffs’ claims.
COLORADO COURT OF APPEALS 2019COA169

Court of Appeals Nos. 18CA1374 & 18CA2005
Pueblo County District Court No. 17CV30403
Honorable Deborah R. Eyler, Judge

Richard Morley and Connie Morley,

Plaintiffs-Appellants,

v.

United Services Automobile Association,

Defendant-Appellee.

JUDGMENT AND ORDER REVERSED
AND CASE REMANDED WITH DIRECTIONS

Division II
Opinion by JUDGE BROWN
Dailey and Richman, JJ., concur

Announced November 14, 2019

Lee N. Sternal, P.C., Lee N. Sternal, Pueblo, Colorado, for Plaintiffs-Appellants

Morgan Rider Riter Tsai, P.C., Tory D. Riter, Denver, Colorado, for Defendant-
Appellee
¶1 In this consolidated action, plaintiffs, Richard Morley and

Connie Morley, appeal the district court’s entry of summary

judgment and its order awarding costs in favor of defendant, United

Services Automobile Association (USAA).

¶2 Applying the unambiguous definition of “surface water”

articulated in Heller v. Fire Insurance Exchange, 800 P.2d 1006,

1008 (Colo. 1990), we distinguish this case from Martinez v.

American Family Mutual Insurance Co., 2017 COA 15, and conclude

that when precipitation falls or leaks into the insured’s dwelling

through holes in a roof damaged by hail (or some other covered

peril), it does not fall within the plain meaning of the term “surface

water” because it was never water “lying or flowing naturally on the

earth’s surface.” Therefore, we reverse the entry of summary

judgment and award of costs and remand to the district court for

further proceedings.

I. Background

¶3 The Morleys purchased a home in Colorado that they used as

a vacation property and visited, on average, four times a year. They

allege that in early June 2015, a severe hailstorm damaged the flat

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roof of the home, which allowed rainwater to leak through the roof,

causing damage to the interior.

¶4 At the time, USAA insured the home under an all-risk property

insurance policy (the Policy). Upon being notified of the claim,

USAA retained an independent insurance adjuster to inspect the

Morleys’ home and estimate the cost to repair the damage. Based

on the estimate, USAA approved and paid for a full roof

replacement. USAA also sent a settlement letter to the Morleys and

authorized an additional payment to repair the interior water

damage that had been identified by the adjuster.

¶5 However, in March 2016, the Morleys told USAA that, while

performing repairs, their contractor had found additional water

damage to the interior of the home. The contractor removed

drywall, carpet, cabinets, and insulation, which significantly

increased the scope and cost of the repairs. USAA denied the

majority of the Morleys’ claim for additional interior damage, but

did not cite the surface water exclusion in the Policy as a reason for

the denial.

¶6 The Morleys filed suit, asserting breach of contract and bad

faith claims based on USAA’s failure to pay the additional claim for

2
interior water damage. USAA moved for summary judgment,

arguing, in relevant part, that even if the damage to the interior of

the home was caused by rainwater that had accumulated on and

then penetrated the roof, under Martinez, the Morleys’ claims were

barred by a surface water exclusion in the Policy. The district court

agreed and granted the motion. It also awarded USAA $23,533.91

in costs as the prevailing party under C.R.C.P. 54(d). The Morleys

appeal.

II. Analysis

¶7 The Morleys contend that the district court erred by granting

USAA’s motion for summary judgment because (1) the surface

water exclusion in the Policy does not apply and (2) USAA waived its

right to rely on the surface water exclusion. Because we conclude

that the district court erred by granting summary judgment based

on the plain language of the surface water exclusion, we need not

address waiver. 1

1 Having concluded that the surface water exclusion barred
coverage, the district court further concluded that “waiver . . . may
not be employed to bring within the policy risks not covered by its
terms or risks expressly excluded therefrom.” See Empire Cas. Co.
v. St. Paul Fire & Marine Ins. Co., 764 P.2d 1191, 1198 (Colo. 1988);

3
¶8 USAA contends that, even if the surface water exclusion does

not bar coverage, we may affirm on the alternative ground that the

claims are precluded because the Morleys violated the Policy’s fraud

clause. Because we conclude that material disputes of fact exist as

to whether the Morleys breached the fraud clause, we cannot affirm

on this alternative ground.

¶9 For these reasons, we reverse the order entering summary

judgment and the award of costs and remand to the district court

for further proceedings.

A. The District Court Erred by Entering Summary Judgment
Based on the Surface Water Exclusion

¶ 10 We understand the Morleys to argue that the surface water

exclusion in the Policy does not preclude their claims because (1)

based on the Policy’s plain language and Colorado case law, water

seeping through a storm-damaged roof is not “surface water”; (2)

even if the water on the roof was “surface water,” it lost that

character when it was diverted by the roof structure; and (3) the

Hartford Live Stock Ins. Co. v. Phillips, 150 Colo. 349, 352, 372 P.2d
740, 742 (1962).

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surface water exclusion is ambiguous and extrinsic evidence

confirms that it does not apply in this case.

1. Preservation

¶ 11 USAA contends that several of the Morleys’ arguments are

unpreserved and are being raised for the first time on appeal.

Recall that USAA’s primary argument in its motion for summary

judgment was that the surface water exclusion precluded coverage

because all of the interior damage to the Morleys’ home was caused

by surface water. In their response to the motion for summary

judgment, the Morleys argued that “[m]aterial questions of fact do

exist over whether the water which entered plaintiffs’ home from the

roof . . . really can be said to have been ‘surface water.’”

¶ 12 The district court entered summary judgment based on its

interpretation of the surface water exclusion in the Policy and its

application of Colorado case law. In so doing, it said that “[t]he

parties agree that the damage was caused by rainwater/hail

penetrating the roof of the home.” Based on that fact, the court

concluded, as a matter of law, that the damage to the interior of the

Morleys’ home was caused by surface water and that the surface

water exclusion in the Policy barred their recovery.

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¶ 13 Thus, the dispositive issues before the district court were the

meaning of the surface water exclusion in the Policy and whether

the water that caused the damage to the interior of the Morleys’

home was “surface water” such that the surface water exclusion

applied. The Morleys’ argument on appeal based on the plain

language of the policy is preserved. See Berra v. Springer &

Steinberg, P.C., 251 P.3d 567, 570 (Colo. App. 2010) (“[T]o preserve

the issue for appeal all that was needed was that the issue be

brought to the attention of the trial court and that the court be

given an opportunity to rule on it.”). 2

2. Standard of Review and Applicable Law

¶ 14 We review the entry of summary judgment de novo. Shelter

Mut. Ins. Co. v. Mid-Century Ins. Co., 246 P.3d 651, 657 (Colo.

2011). Summary judgment is appropriate where the pleadings and

supporting documents clearly demonstrate that no issues of

material fact exist and the moving party is entitled to judgment as a

matter of law. C.R.C.P. 56(c); Cotter Corp. v. Am. Empire Surplus

2 Because we resolve this appeal based on the plain, unambiguous
language of the Policy, whether the Morleys preserved their
alternative arguments is irrelevant.

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Lines Ins. Co., 90 P.3d 814, 819 (Colo. 2004). For purposes of

summary judgment, a “material fact” is one that will affect the

outcome of the case. Olson v. State Farm Mut. Auto. Ins. Co., 174

P.3d 849, 853 (Colo. App. 2007). We afford all favorable inferences

that may be drawn from the undisputed facts to the nonmoving

party, and we resolve all doubts as to the existence of a triable issue

of fact against the moving party. Cotter Corp., 90 P.3d at 819.

¶ 15 An insurance policy is a contract and its meaning is a

question of law that we review de novo. Allstate Ins. Co. v. Huizar,

52 P.3d 816, 819 (Colo. 2002). We construe an insurance policy

according to well-settled principles of contract interpretation. Id.

In interpreting a contract, we give effect to the intent and

reasonable expectations of the parties. Sachs v. Am. Family Mut.

Ins. Co., 251 P.3d 543, 546 (Colo. App. 2010). We read the

provisions of a policy as a whole, construing the policy so that all

provisions are harmonious and none are rendered meaningless.

Martinez, ¶ 8.

¶ 16 We enforce an insurance policy as written unless the relevant

policy language is ambiguous. Cary v. United of Omaha Life Ins.

Co., 108 P.3d 288, 290 (Colo. 2005). Policy language is ambiguous

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if it is susceptible on its face to more than one reasonable

interpretation. Id. Mere disagreement between the parties about

the meaning of a term in a policy does not create an ambiguity.

Kane v. Royal Ins. Co. of Am., 768 P.2d 678, 680 (Colo. 1989).

¶ 17 An unambiguous limitation or exclusion in an insurance

policy must be enforced as written. Bolejack v. Travelers Ins. Co.,

64 P.3d 939, 940 (Colo. App. 2003). But the insurer bears the

burden of proving that a particular loss falls within an exclusion in

the contract. Colo. Intergovernmental Risk Sharing Agency v.

Northfield Ins. Co., 207 P.3d 839, 842 (Colo. App. 2008).

3. Relevant Policy Language

¶ 18 The Policy is an all-risk policy designed to cover a wide range

of damages to the Morleys’ property unless coverage for a particular

type of loss is expressly excluded. The policy provides the following

coverage: “We insure against ‘sudden and accidental’ direct physical

loss to [the dwelling] unless excluded in SECTION I – LOSSES WE

DO NOT COVER.” 3

3 It appears that the parties agree that the damage to the interior of
the Morleys’ home was damage to the “dwelling” rather than to
“personal property.” Accordingly, we address only the provisions of
the Policy that apply to coverage for the dwelling.

8
¶ 19 As relevant here, USAA relied on the surface water exclusion

as the basis for its motion for summary judgment. This exclusion

provides as follows:

We do not insure for loss or damage consisting
of, caused directly or indirectly by . . .

....

c. Water damage arising from, caused by or
resulting from human or animal forces, any
act of nature, or any other source. Water
damage means damage caused by or
consisting of:

(1) Flood, surface water, waves, tidal water,
storm surge, tsunami, any overflow of a body
of water, or spray from any of these, whether
or not driven by wind.

(Emphasis added.) 4

4. Discussion

¶ 20 This appeal requires us to interpret the term “surface water” in

the Policy. If the water that caused the damage to the interior of

the Morleys’ home was surface water, the surface water exclusion

4The Policy also contains an “anti-concurrent” clause, which
precludes coverage even if the loss is caused by a combination of a
covered cause, event, or peril and an excluded one. Although USAA
raised the anti-concurrent clause during oral argument as
additional grounds to affirm, it did not rely on it as a basis for
summary judgment, so we do not address it.

9
applies to bar coverage and the district court properly granted

summary judgment in favor of USAA. If the water was not surface

water, or if there remains a dispute of fact as to whether the water

was surface water, the district court’s entry of summary judgment

was erroneous.

¶ 21 The Colorado Supreme Court defined “surface water” in Heller,

800 P.2d at 1008. In Heller, the interior of the plaintiffs’ property

was damaged by runoff from melted snow that had been diverted

onto the plaintiffs’ property by man-made trenches that were fifteen

feet long, three feet wide, six inches deep, and lined. Id. at 1007.

The court interpreted a similar surface water exclusion in an all-

risk policy. Although the term “surface water” was not defined in

the policy, the court concluded that the term unambiguously means

water from melted snow, falling rain, or rising
springs, lying or flowing naturally on the
earth’s surface, not gathering into or forming
any more definite body of water than a mere
bog, swamp, slough, or marsh, and lost by
percolation, evaporation, or natural drainage.
Surface water is distinguished from the water
of a natural stream, lake, or pond, is not of a
substantial or permanent existence, has no
banks, and follows no defined course.

Id. at 1008-09 (footnotes omitted).

10
¶ 22 Applying this definition, the court reasoned that, although the

runoff from the melted snow was originally surface water, it lost

that character when it was diverted by the trenches because the

trenches were defined channels that prevented percolation,

evaporation, or natural drainage. Id. at 1009. Thus, the court

concluded that the surface water exclusion did not apply and the

plaintiffs’ loss was covered by their insurance policy. Id.

¶ 23 We are bound to apply the definition of “surface water”

articulated by the supreme court in Heller. See In re Estate of

Ramstetter, 2016 COA 81, ¶ 40. Thus, we conclude that the term

“surface water” is not ambiguous, and we reject the Morleys’

arguments to the contrary. Still, we must apply the unambiguous

term “surface water” to the facts of this case, which are significantly

different from those in Heller.

¶ 24 USAA contends that the precipitation that leaked through the

Morleys’ storm-damaged roof constitutes surface water. In support

of this argument, USAA relies heavily on Martinez, where a division

of this court evaluated a similar surface water exclusion in an all-

risk insurance policy.

11
¶ 25 In Martinez, the plaintiff alleged that his basement was

damaged when rainwater collected on top of a large amount of hail

at the base of basement window wells and then overflowed into the

basement windows, causing substantial damage to the interior of

the plaintiff’s property. Martinez, ¶ 3. The insurer denied the

plaintiff’s claims because it concluded the damage was caused by

surface water and, therefore, was expressly excluded from coverage

under the surface water exclusion. Id. at ¶ 4. The trial court

agreed and granted the insurer’s motion for summary judgment.

Id. at ¶ 6.

¶ 26 On appeal, the plaintiff argued, in relevant part, that the

surface water exclusion did not apply because the precipitation that

caused the damage first landed on the roof, then flowed directly into

the window wells. According to the plaintiff, because the water was

never lying or flowing naturally on the earth’s surface, it was not

surface water. Id. at ¶ 31.

¶ 27 The division rejected this argument, concluding that even if

the precipitation first fell on the roof and then flowed directly into

the window wells, it fit “well within Heller’s definition of surface

water.” Id. at ¶¶ 32, 35. The division reasoned that the term

12
“earth’s surface” was not as narrow as the plaintiff argued, but

instead that “the rooftop of [the plaintiff’s] home [was] a mere

continuation of ‘the earth’s surface.’” Id. at ¶¶ 33-35. Because the

roof could be considered part of the “earth’s surface,” the division

concluded that the precipitation that fell on that roof and then

flowed directly into the window wells was surface water. Id. at ¶ 35.

Thus, the surface water exclusion in the insurance policy barred

coverage for the plaintiff’s damage. Id. at ¶ 52.

¶ 28 In reaching its conclusion, the Martinez division surveyed

other jurisdictions and found that “the overwhelming majority of

jurisdictions that have addressed this issue . . . view precipitation

collecting on a roof or other man-made structures as ‘surface

water.’” Id. at ¶ 34. But the cases cited in Martinez are factually

distinguishable. Most involved paved or man-made surfaces at or

just inches above ground level. See Cameron v. USAA Prop. & Cas.

Ins. Co., 733 A.2d 965 (D.C. 1999) (relying on Heller and finding

surface water included water that first landed on a patio and then

flowed into a basement); Fenmode, Inc. v. Aetna Cas. & Sur. Co. of

Hartford, 6 N.W.2d 479, 480-81 (Mich. 1942) (concluding that water

overflowing from a paved surface was surface water); Crocker v. Am.

13
Nat’l Gen. Ins. Co., 211 S.W.3d 928, 936 (Tex. App. 2007) (finding

that surface water is not limited to rain falling on dirt, and that

water draining off of a raised patio was surface water). And none

involved water penetrating through the paved or man-made surface

to cause damage; rather, all involved water flowing off the man-

made surface and ultimately causing damage some other way.

Importantly, none involved precipitation accumulating on and

penetrating an (allegedly) hail-damaged roof to cause interior

damage.

¶ 29 Indeed, the only case cited in Martinez that involved water

falling on a roof is Bringhurst v. O’Donnell, 124 A. 795 (Del. Ch.

1924), which interpreted the term “surface water” in a “reservation

of use . . . ‘for the purpose of carrying off the surface water and

cleaning the cesspools on said lots and for no other purpose.’” Id.

at 797. Bringhurst did not involve a surface water exclusion in an

insurance policy. Still, the water at issue there flowed off the roof

and into the alley that was the subject of the easement.

¶ 30 USAA also relies on Oak Hill Investment IV LLC v. State Farm

Fire & Casualty Co., No. 15-CV-1996, 2017 WL 4286779 (N.D. Ohio

Sept. 27, 2017), aff’d, 737 F. App’x 722 (6th Cir. 2018), in arguing

14
that the surface water exclusion precludes the Morleys’ claims. Not

only is that case not binding on us, but it is also factually

distinguishable. In Oak Hill, precipitation pooled on a roof until it

overflowed an air conditioner unit and entered the insured’s

building; the water did not penetrate the roof through holes created

by a covered event, such as is alleged here. Further, the court

applied Ohio’s definition of “surface water,” which is markedly

different from the definition articulated in Heller and has been

interpreted broadly by Ohio courts. Accordingly, we do not find

Oak Hill persuasive here.

¶ 31 We agree that man-made surfaces, such as roofs or patios,

can intercept precipitation and generate surface water. Indeed, it

would be nonsensical to categorically exclude precipitation falling

on a roof from the definition of surface water simply because the

roof temporarily detours the water from its natural flow down grade

toward the earth’s surface and its eventual manifestation as surface

water. By contrast, when precipitation falls or leaks into the

insured’s dwelling through holes in a roof damaged by hail (or some

other covered peril) — rather than running off the roof and behaving

as one would expect water intercepted by a roof to behave — it does

15
not fall within the plain meaning of the term “surface water”

because it was never water “lying or flowing naturally on the earth’s

surface” (even if the roof is considered an extension of the “earth’s

surface”). Heller, 800 P.2d at 1008.

¶ 32 Here, the district court stated that the interior damage to the

Morleys’ home was caused by “rainwater/hail penetrating the roof

of the home.” Based on that characterization, we disagree with the

district court’s conclusion, as a matter of law, that the water

causing the damage to the interior of the Morleys’ home was

“surface water” triggering the surface water exclusion in the Policy.

¶ 33 In reaching this conclusion, we reject USAA’s contention that

Martinez stands for the proposition that the moment water falling

from the sky touches a roof or other man-made surface it becomes

“surface water,” such that any damage subsequently caused by that

water is excluded from coverage. We do not read Martinez to

declare such a broad and bright line.5 Nor would such a

5To the extent that the division in Martinez intended to declare
such a broad proposition, we are not bound to agree. See Roque v.
Allstate Ins. Co., 2012 COA 10, ¶ 20 (“[W]e are not bound to follow
decisions of other divisions of this court.”).

16
declaration be consistent with the parties’ reasonable expectations

or the binding definition of “surface water” articulated in Heller.

¶ 34 Instead, whether the water that caused damage to the interior

of the Morleys’ home was “surface water” is a more nuanced

question. And, notwithstanding the district court’s statement that

“[t]he parties agree that the damage was caused by rainwater/hail

penetrating the roof of the home,” precisely how the water entered

the home is unclear based on the record before us on appeal.

¶ 35 In their complaint, the Morleys allege that the interior damage

was caused by precipitation entering directly through holes in the

roof caused by the hail damage. If that allegation is true, the water

that caused the damage in this case was never “lying or flowing

naturally” on the roof and was not surface water. For purposes of

summary judgment, USAA acknowledged the Morleys’

characterization, but did not concede its accuracy. Instead, USAA

argued that it was entitled to summary judgment even if the cause

of the interior water damage was as the Morleys alleged. Thus, it

appears material facts are in dispute that preclude entry of

summary judgment.

17
¶ 36 Because we disagree with the district court’s conclusion that,

as a matter of law, the Morleys’ claims are barred by the surface

water exclusion in the Policy, we conclude that the court erred by

entering summary judgment in favor of USAA.

B. There are Disputes of Material Fact about Whether the Policy’s
Fraud Clause Precludes the Morleys’ Claims

¶ 37 USAA contends that, because the Morleys failed to disclose

material facts, their claims are also barred by the Policy’s fraud

clause. USAA raised this argument in its motion for summary

judgment as an alternative ground for judgment in its favor on the

Morleys’ claims, but the district court did not address it. Even so,

we may affirm a trial court’s ruling based on any grounds that are

supported by the record. See Rush Creek Sols., Inc. v. Ute Mountain

Ute Tribe, 107 P.3d 402, 406 (Colo. App. 2004).

¶ 38 The Policy provides, in relevant part, that USAA may

deny coverage as to the interest of all
“insureds” if you or any other “insured”,
whether before or after an “occurrence” or loss
under this policy has:

(a) concealed or misrepresented any material
fact or circumstance.

18
¶ 39 USAA contends that in October 2014, almost eight months

before the Morleys reported their claim to USAA, the Morleys had a

roofing company inspect and estimate the replacement cost for their

roof. According to USAA, the Morleys failed to disclose the

inspection report, which revealed that the roof had several rotten

areas and would need to be replaced. USAA contends this

information was material to the claim and the Morleys’ failure to

disclose it allows USAA to deny coverage.

¶ 40 The Morleys dispute that they concealed or misrepresented

material facts. Instead, the Morleys contend that the inspection did

not reveal that the roof needed immediate replacement or that water

was leaking into the home.

¶ 41 Although the interpretation of an insurance policy is a matter

of law we review de novo, Huizar, 52 P.3d at 819, genuine disputes

of fact exist regarding the content and materiality of the inspection

report and the Morleys’ intent in failing to disclose it. The district

court did not resolve these factual disputes, nor should it have,

when entering summary judgment. And, we may not resolve such

disputes for the first time on appeal. Thus, we cannot affirm the

district court’s entry of summary judgment based on USAA’s

19
alternative argument that the fraud exemption precludes the

Morleys’ claims.

III. Conclusion

¶ 42 We reverse the district court’s entry of summary judgment and

its award of costs in favor of USAA, and we remand to the district

court for further proceedings consistent with this opinion.

JUDGE DAILEY and JUDGE RICHMAN concur.

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