Water Damage from Broken Water Main Not Due to "Explosion"

PROPERTY – HOMEOWNERS – WATER LOSS EXCLUSION – EXPLOSION EXCEPTION
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:

1. 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.


2. 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.


3. 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.

* * * * *

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 [2008] [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.

Things That Go Boom -- Court Affirms Coverage for Loss Due to Contaminants Released Into Atmosphere by Explosion at Nearby Chemical Plant

PROPERTY – CONTAMINATION – "DIRECT PHYSICAL LOSS" – EXPLOSION – "WEAR AND TEAR" EXCLUSION
Trupo v. Preferred Mut. Ins. Co.
(4th Dept., decided 2/6/2009)

On January 5, 2002, the Diaz Chemical Corporation facility in the Village of Holley, Orleans County, New York, accidentally released a mixture consisting primarily of toluene, water (steam), and 2-chloro-6-fluorophenol (CFP) into outdoor air. Soon after the chemical release, residents of nearby homes complained of acute health effects such as sore throats, headaches, eye irritation, nosebleeds, and skin rashes.

The "release" occurred when a pressure build-up in heated storage vessel at the Diaz facility caused a pressure disc to rupture. The rupture resulted in a chemical discharge that visibly contaminated surfaces in the nearby neighborhood and produced odors that were reported as far as 12 miles away. According to Diaz, approximately 80 gallons of liquid were released. The mixture was reported to be mostly water (in the form of steam), toluene, and CFP. Droplets of CFP deposited on cars, houses, and other surfaces to the east-northeast of Diaz. On January 6 and 7, fifteen to twenty families voluntarily relocated with assistance from Diaz.

Many if not all of these families made first-party property coverage claims to their homeowners insurers. The Trupos were one such family. They claimed that their home and contents were damaged by the explosion and release of CFP, a contaminant. Many of the insurers to which those claims were submitted, including Preferred Mutual Insurance Company, denied coverage based on a variety of reasons. Preferred Mutual's reasons included that there was no direct physical loss from a covered peril, including explosion, and the policy's "Wear and Tear" exclusion, which negated coverage for, among other things, loss that resulted from contamination.

In AFFIRMING the motion court's denial of Preferred Mutual's motion and granting of the plaintiffs' cross motion for summary judgment, the three-justice majority (Centra, Green and Gorski) of the Fourth Department ruled that an explosion was the cause of the damage to plaintiffs' property and the policy's wear and tear exclusion was ambiguous and did not apply:

The policy issued by defendant provided coverage for "direct physical loss" caused by certain perils, including explosion. We agree with plaintiffs that the incident at the chemical plant constitutes an explosion under the policy and that the alleged contamination of their home was caused by that explosion. We further agree with plaintiffs that the exclusion relied upon by defendant, entitled "Wear and Tear," does not apply to this case. Pursuant to that exclusion, defendant would "not pay for loss which results from wear and tear, marring, deterioration, inherent vice, latent defect, mechanical breakdown, rust, wet or dry rot, corrosion, mold, contamination or smog" (emphasis added). We reject defendant's contention that, because the damage to plaintiffs' home arises out of pollution or contamination, the exclusion for "Wear and Tear" applies. Rather, we conclude that the exclusion in question is ambiguous and thus should be construed in favor of plaintiffs, the insureds (see generally White v Continental Cas. Co., 9 NY3d 264, 267; Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383). The title "Wear and Tear" would lead an average person to believe that the exclusion for "contamination" therein included only contamination that occurred over time, rather than a sudden occurrence such as the incident here.

The two-justice dissent (Scudder and Pine), while agreeing that the chemical plant incident constituted an "explosion" under the policy and that the alleged contamination of plaintiffs' home was caused by that explosion, disagreed that the policy's wear and tear exclusion was ambiguous and did not apply to negate coverage.  "Plaintiffs suffered a loss from contamination, and the policy specifically excludes loss resulting from contamination. '[U]nambiguous provisions of an insurance contract must be given their plain and ordinary meaning[.]'"  The dissent also disagreed with the majority that the "Wear and Tear" title of the exclusion rendered it ambiguous:

The majority focuses on the title of the paragraph containing the exclusion in question and concludes that it would lead an average person to believe that the exclusion for contamination was only for contamination that occurred over time. We disagree. Rather, we apply the principle of statutory construction that titles are given little weight. "The title of a statute may be resorted to . . . only in case of ambiguity in meaning, and it may not alter or limit the effect of unambiguous language in the body of the statute itself" (McKinney's Cons Laws of NY, Book 1, Statutes § 123 [a]). Inasmuch as the language in the exclusion in question is unambiguous and does not limit the exclusion to contamination that occurs over time, we decline to add such limiting language.

The majority also affirmed the motion court's decision denying that part of plaintiffs' cross motion for damages in the amount of approximately $144,000, and instead ordering a hearing on damages.