|
Commercial
Property |
Backup of
Sewers and Drains |
|
Water
Damage |
Ambiguity |
Michael Pichel
owned a four-building apartment complex covered by a policy issued by Dryden
Mutual Insurance Company (Dryden). While the policy was in effect, two of the
buildings sustained significant water
damage when wastewater entered
the first-floor apartments through toilets, bathtubs, condensation drains, and
laundry room drains. Pichel filed a property loss
notice on a timely basis. Dryden denied coverage on the basis that the loss
fell within multiple exclusions in the policy. One of these was the “Water Damage” exclusion that applied to losses caused by “water which
backs up through sewers or drains.”
Pichel
later submitted a sworn statement in the proof of loss that his adjuster
prepared that contended that the policy covered the cause of the loss,
specifically “[a]ccidental [o]verflow/[d]ischarge of a[p]lumbing [s]ystem.” Dryden again
denied coverage.
Pichel
subsequently filed an action for breach of contract and sought a declaration
that the policy covered the loss. Pichel then moved
for partial summary judgment on liability and Dryden cross-moved for summary judgment
to dismiss the complaint. The Supreme Court of New York, Tompkins County,
granted Pichel’s motion, declared that the policy
covered the loss, and denied Dryden's cross motion. Dryden appealed.
On appeal, the New York Supreme Court,
Appellate Division, noted that the Dryden policy contained a second exclusion,
also titled “Water Damage.” It stated that there was no coverage “for loss
caused by repeated or continuous discharge, or leakage of liquids or steam from
within a plumbing ... system.” The court pointed out that this exclusion also
stated that Dryden did “pay for
loss caused by the accidental leakage, overflow or discharge of liquids or
steam from a plumbing ... system.” The trial court found that the two
provisions were ambiguous and should be reconciled so that the exclusion
applied to a backup that originated off an insured's property (i.e., in a
municipal sewer or drain), while the coverage provision applied to an
occurrence that originated within the insured's property (i.e., in a property
owner's plumbing system).
The appellate court agreed that the two
water damage exclusions created an ambiguity in the policy as to losses that
resulted from a backup and/or overflow from sewers, drains, and/or plumbing
systems. The court stated that Dryden failed to establish that its
interpretation (that the loss was excluded from coverage so long as water
backed up through a sewer or drain, regardless of where the sewer or drain was
located) was the only fair interpretation of the two provisions. “Further,
defendant's interpretation of the exclusion provision essentially renders
meaningless the coverage for ‘overflow’ of liquids from a plumbing system as
provided in the coverage provision.”
The appellate court affirmed the trial
court’s resolution of the ambiguity in Pichel’s
favor. However, it ruled that the lower court had erred in granting Pichel’s motion for partial summary judgment. This was
because he failed to submit sufficient admissible evidence to demonstrate the
absence of any factual issues as to whether he sustained a covered loss.
The appellate court reversed the trial
court’s grant of partial summary judgment in Pichel’s
favor.
Michael J. Pichel
v. Dryden Mutual Insurance Co. Supreme Court, Appellate Division, 3rd
Department, New York. May 15, 2014. 2014 WL 1923736