Appellate Court Construes Water Damage Coverage For Backup Through Sewers Or Drains
In a case of first impression, the New York Appellate Division, Third Department, recently analyzed coverage under a property policy of insurance covering a four-building apartment complex which sustained water damage as a result of waste water emanating from toilets, bathtubs and condensation drains. Pichel v. Dryden Mutual Insurance Company, __ A.D.3d __, 2014 N.Y. Slip Op. 3575 (3d Dep’t March 27, 2014).
Following the loss, Dryden Mutual disclaimed coverage, among other things, based upon the “Water Damage” exclusion for “water which backs up through sewers or drains.”
Plaintiff contended that the cause of the loss was as the result of “[a]ccidental [o]verflow/discharge of a [p]lumbing [s]ystem” which was covered under the policy.
Plaintiff brought suit for breach of contract and for a declaration that the loss was covered under the terms of the policy. Following discovery, Plaintiff moved for partial summary judgment on the issue of liability, and Defendant cross-moved for summary judgment dismissing the complaint.
Supreme Court granted Plaintiff’s motion and declared that the loss was covered under the terms of the policy, and denied Defendant’s cross-motion. Defendant appealed.
Dryden Mutual relied upon the above policy exclusion for water which backs up through sewers or drains, as well as an additional water damage exclusion “for loss caused by repeated or continuous discharge or leakage of liquids or steam from within a plumbing system.” The latter exclusion also provided that the insurer does “pay for loss caused by the accidental leakage, overflow or discharge of liquids or steam from a plumbing system.”
The lower court found that these two provisions were ambiguous, and that the exclusion provision applied to a backup originating off the insured property (i.e. a municipal sewer), whereas the coverage provision applied where the occurrence originated within the insured’s property (i.e. in the property owner’s plumbing system).
The Appellate Division held that an ambiguity existed regarding losses from a backup or overflow of sewers, drains and/or plumbing systems. The Court noted that this ambiguity was an issue of first impression in New York, and agreed with the lower court’s resolution of the ambiguity based upon decisions from other jurisdictions which found coverage for water damage caused by a backup/overflow originating within the insured’s plumbing system, while such a backup/overflow from a clogged municipal sewer line outside the insured’s system is not covered.
However, the Appellate Division reversed the lower court’s grant of partial summary judgment to the Plaintiff as the proof did not establish where the backup actually occurred. As such, the matter will proceed to an evidentiary hearing to resolve the remaining factual issues.
This is an important decision of first impression in New York, providing guidance relating to property losses caused by backups of sewers and drains.
Should you have questions regarding the information presented in this alert, please contact Anthony J. Piazza, Chair of the firm’s Insurance Coverage & Regulation Practice Area, at (585) 295-4420 or firstname.lastname@example.org.