The LaGumina Law Firm, Partner
John J. LaGumina
The client’s tale. Can an insurer properly deny a condo’s claim for defense and indemnification coverage for a chronic sewage backup lawsuit based on a pollution exclusion or a “known condition” exclusion? A new condo client was being sued by unit-owners who had experienced a sewage backup in their units. This was not the first time that the low-lying units had experienced a sewage backup. As a result, the insurance adjuster who had inspected the unit damage directed that no repairs be made until the insurer could determine “why this keeps happening.” The units had experienced sewage backups in the past, but no lasting solution had been found, despite attempts to address the problem like installing check valves in the sewage pipes.
We recommended that the condo hire engineers to find a lasting solution to the problem. We also submitted the lawsuit to the condo’s insurer for coverage and defense. The insurer denied coverage on the grounds that sewage constituted pollution, which was excluded from coverage, and also that the policy excluded coverage from what it felt was a “known condition,” an assessment based on information and allegations that the insurer received in phone calls from the plaintiff’s attorney. My protests to such an obviously biased analysis were disregarded, and we were forced to defend the lawsuit and also bring a third-party action against the insurer to obtain coverage and defense under the insurance policy.
In a summary judgment motion against the insurer, the court found that the pollution exclusion did not apply (the leak was mostly water, and the pollution exclusion in New York is really aimed at environmental pollution, which was not involved here) and that there was no evidence that the condo had simply ignored a known condition. The court took note of the prior unsuccessful good faith attempts by the condo board to address the problem. As a result of the decision, the insurer eventually paid for the defense and ultimate settlement of the lawsuit. The condo also took measures to prevent future backups.
The lawyer’s take. Handling insurance claims and unit repairs due to water infiltration from the common areas is a frequent and sometimes confusing task for condominium boards and their managing agents. Often the insurance agent and insurance adjuster can be of great assistance in handling the immediate repairs and clarifying the board’s repair responsibilities. Yet their conclusions and instructions are not always correct and should be scrutinized. Probing and questioning the reasons for the denial of coverage and then examining the actual insurance policy is what ended up helping the condominium in this case. It is also important for the board and managing agent to address the cause of the water infiltration so that the problem does not happen again.
Case closed. While most condominium bylaws do not make a condominium board a guarantor that a unit won’t suffer leaks from the common areas, the board is under a duty to try to address the causes or sources of such leaks once they are brought to its attention.