Coverage Granted for Hardwood Floor Damage from Longstanding Water "Misting" from Split Sub-Floor Pipe

PROPERTY – WATER DAMAGE – PIPE LEAK – "SEEPAGE" – "SUDDEN"
Flynn v. Allstate Indem. Co.
(Watertown City Ct., decided 3/24/2009)

WARNING:   Reading this decision may cause cognitive vertigo.  There's a lot in here for a $3,000 water damage case.  Click the case link at your own risk.

Plaintiff insureds had $200,000 in improvements done to an older house.  Leave in September 2007 for 6-7 weeks.  Come back in late October.  Discovers their dining room floor had buckled in early November.  Their contractor comes out in mid-November and discovers "major pipe leak with water going all over the place".  Recommends that the insureds call a plumber.  Plumber comes in early December and finds a pipe beneath the dining room floor had split and was spraying water onto the sub-floor over a six to seven foot radius.  Puts a temporary patch on the leak.  Insureds finally report the loss to their Allstate agent on December 21, 2007.

Allstate inspected the loss and denied coverage, based on the policy's exclusion of water damage due to:

18.  Seepage, meaning continuous or repeated seepage or leakage over a period of weeks, months, or years, of water, steam or fuel:
a)  from a plumbing, heating, air conditioning or automatic fire protection system or from within a domestic appliance; or
b)  from, within or around any plumbing fixtures, including, but not limited to, shower stalls, shower baths, tub installations, sinks or other fixtures designed for the use of water or steam.

Allstate's claims adjuster did not inspect the patched pipe, but spoke with the plumber, who told him that he had found a "split on the very top of the pipe...spraying mist onto the sub-floor above this split covering ten foot diameter[.]"   From his investigation, the adjuster concluded that the loss had not been "sudden" and that the "misting" which led to a steady saturation of the structures above it, including over time the affected floor, met the policy's definition of "seepage" excluded by the policy, i.e., "...continuous...leakage over a period of weeks...of water...(a) from plumbing[.]"  In defense of its denial, Allstate also argued that the policy does not cover damage due to "seepage" of water, but rather, only water damage resulting from a "burst" pipe.

Following Allstate's denial, the insureds had the dining room floor repaired.  The cost of repairs was $3,000, but the flooring contractor, although he had prepared a bill, decided under the circumstances that he would not charge the insureds for that repair work.

After conducting an evidentiary hearing or trial, Watertown City Court Judge James Harberson awarded plaintiff $3,000 plus costs.  Based on New York pollution exclusion case law addressing the meaning of "sudden and accidental" in liability coverage contexts, Judge Harberson found an "ambiguity in the policy language involving the 'seepage' term and 'sudden and accidental.'"  Relying heavily on the Second Department's 2006 decision in Hudson v Allstate Ins. Co., 25 AD3d 654 (2nd Dept. 2006), the court found that that the plumbing system pipe failure was covered under plaintiff's policy as a "sudden and accidental escape of water...from a plumbing...system" as provided under the exception to Exclusion # 15, which negates coverage for:

15. a) wear and tear, aging, marring, scratching, deterioration, inherent vice, or latent defect;

b) mechanical breakdown;

c) growth of trees, shrubs, plants or lawns whether or not such growth is above or below the surface of the ground;

d) rust or other corrosion, mold, wet or dry rot;

e) contamination, including, but not limited to the presence of toxic, noxious, or hazardous gases, chemicals, liquids, solids or other substances at the residence premises or in the air, land or water serving the residence premises;

f) smog, smoke from the manufacturing of any controlled substance, agricultural smudging and industrial operations;

h) insects, rodents, birds or domestic animals. We do cover the breakage of glass or safety glazing materials caused by birds; or

i) seizure by government authority.

If any of (a) through (h) cause the sudden and accidental escape of water or steam from a plumbing, heating or air conditioning system, household appliance or fire protective sprinkler system within your dwelling, we cover the direct physical damage caused by the water or steam.  If loss to covered property is caused by water or steam not otherwise excluded, we will cover the cost of tearing out and replacing any part of your dwelling necessary to repair the system or appliance. This does not include damage to the defective system or appliance from which the water escaped.

As the Second Department had in Hudson, Judge Harberson ruled that this exception to Exclusion # 15 created a latent ambiguity in the policy's Exclusion # 18, the seepage exclusion.

Although plaintiffs did not present any evidence of what caused the pipe beneath their dining room's floor to split, the court found "[i]t ... reasonable to observe that, as described by the plumber, such a split in the pipe could be due to any of the conditions listed at 15(a)(b) or (d) allowing the 'sudden and accidental escape of water' from this split in the top of the pipe for which the policy will cover in such case."

A strong argument could be made that inasmuch as the language the court relied upon is from an exception to an exclusion, the court erred in not requiring the insured to prove the cause of the pipe splitting.  Rather, the court ruled that Allstate "fail[ed] to investigate the cause of the pipe's failure and exclude as a cause the conditions listed at paragraph 15 a), b) and d) for it[.]"  Although insurers must prove the applicability of policy exclusions, insureds always carry the burden of proving inclusionary policy provisions.  An exception to an exclusion can be considered an inclusionary provision for which an insured must shoulder the burden of proof. 

On the issue of damages, while not disputing the reasonableness of the $3,000 repair cost figure, Allstate argued that because the flooring contractor had not billed the insureds for the $3,000 in repairs, the  insureds  had suffered no damages.  In an interesting use of Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of NY, 10 NY3d 187, defense counsel for Allstate also argued that plaintiff's proof of "consequential damages" (which they weren't) was speculative and, thus, legally insufficient.  In angrily rejecting Allstate's arguments, Judge Harberson ruled:

[T]he $3,000 is still due to be paid without regard to whether someone else gave him $3,000 (a bank loan or private loan, or as in this case, a gift of the value of the labor and materials).

* * * * *

The Court finds the defense argument that no damages were due because the contractor, Mike Goodwin, decided not to send the $3,000 bill for the work to be spurious and for Allstate to attempt to piggyback on this generosity of Mr. Goodwin to make itself a beneficiary of it to avoid paying the $3,000 due under the policy is also reprehensible and outrageous conduct engaged in by Allstate Insurance Company. 

Water damage claims are tough.  There is usually more than one policy provision or exclusion that has the potential of applying to affect the coverage outcome. Is a pipe's splitting not a bursting?  Is it possible for a pipe to leak and the first drop of water to escape gradually rather than suddenly?   I think I understand the underwriting intent underlying the seepage exclusion, but both the Second Department and this court validly observed what appears to be an inherent conflict between the seepage exclusion and the "sudden and accidental escape of water" exception to the wear and tear, etc. exclusion.  Things that make you go hmmm.

Anyone other than me get the irony of this case's venue?