Platek v. Town of Hamburg
(Ct. Apps., decided 2/19/2015)
A subsurface water main abutting the property of plaintiffs ruptured, causing water to flood into and severely damage their home's finished basement. Plaintiffs immediately made a claim under their homeowners' insurance policy with defendant Allstate Indemnity Company.
Plaintiff's homeowners policy with Allstate contained the following exclusion:
We not cover loss to the property ... consisting of or caused by:
4. Water ... on or below the surface of the ground, regardless of its source[,] [including] water ... which exerts pressure on, or flows, seeps or leaks through any part of the residence premises.
We do cover sudden and accidental direct physical loss caused by fire, explosion or theft resulting from items 1 through 4 listed above.Allstate denied coverage under Exclusion 4, and plaintiffs commenced this action against the municipality and Allstate. Plaintiffs moved for summary judgment on their breach of contract claim, asserting that because they had "sustained a water intrusion loss" caused by "an explosion of the ... water main," their claim fell within the exception to the water loss exclusion. In support of their motion, plaintiffs submitted the affidavit of an engineer, who stated that the water main "suddenly exploded from the internal water pressure being exerted on the pipe walls. Hence, the explosion resulted from internally pressurized water that was supposed to be contained in a buried underground pipe." He opined that plaintiffs had therefore suffered "direct physical loss to their home and other property," which was "caused by an explosion resulting from internally pressurized water suddenly and accidentally bursting from the underground pipe." Allstate cross-moved for summary judgment, arguing that the explosion exception did not apply because, under that provision's wording, any "loss caused by ... explosion" must "result[ ] from" the explosion. Allstate argued that in this case, by contrast, any explosion "occurred earlier, outside the residence premises, when the water main broke."
Supreme Court granted plaintiffs' motion and denied Allstate's cross motion, and declared that plaintiffs' loss was covered under the policy and Allstate was required to pay the claim. On Allstate's appeal, the Appellate Division, with two Justices dissenting in part, modified Supreme Court's order by vacating the declaration and otherwise affirmed. All the Justices agreed that since plaintiffs asserted a cause of action against Allstate for breach of contract, Supreme Court erred by "declaring" that plaintiffs' claimed loss was covered under the policy and directing payment. The Court split on the issue of whether the policy's sudden and accidental exception to the water loss exclusion applied.
In REVERSING the Appellate Division's denial of Allstate's cross motion for summary judgment, the Court of Appeals first reviewed the "three basic principles" of insurance policy interpretation guiding its analysis in this case:
- In determining an insurance coverage dispute the court first looks to policy language, construing the policy in a such way that affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect.
- Although the insurer has the burden of proving the applicability of a policy exclusion it is the insured's burden to establish the existence of coverage, which includes demonstrating the applicability of an exception to a policy exclusion.
- Where a property insurance policy contains an exclusion with an exception for ensuing loss, courts should assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk.
After holding that the plaintiffs' loss clearly fell within the policy's water loss exclusion, the court rejected the plaintiffs' argument that explosion exception applied, holding:
Plaintiffs nonetheless argue that the water damage to their basement was covered because it was "caused by an explosion of the ... water main resulting from highly pressurized water located on or below the surface of the ground," or, as stated slightly differently elsewhere in their brief, that "the explosion occurred as a result of water that was exerting pressure on the Property" or "the Residence." But this is not what plaintiffs' expert said. He opined that "highly pressurized water" exerted internal water pressure on the walls of a pipe buried off plaintiffs' property, not that an explosion resulted from subsurface water "exert[ing] pressure on . . . any part of the residence premises" per item 4 of the water loss exclusion.
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In sum, interpreting the insurance policy as plaintiffs propose would contravene the water loss exclusion's purpose, as expressed in unambiguous language, which is to preclude coverage for damages caused by the entry of water onto an insured's property. As stated by the Supreme Court of New Hampshire when interpreting a policy excluding water loss, "[t]o apply the ensuing loss provision to provide coverage for what is essentially a flood would subvert the intent of the parties" (Bates v Phenix Mut. Fire Ins. Co., 156 NH 719, 723, 943 A2d 750, 754  [internal quotation marks omitted]). In the same way, permitting coverage under the facts of this case would force Allstate to insure a loss it did not contemplate and, indeed, affirmatively excluded.