Think Your Building's Insured for Water Damage? Maybe Not, Says a Court
May 29, 2014 — Insurance for damage caused by a "plumbing system" is only covered if the overflow originated on your own co-op or condo's property, but not if the backup originated from a municipal water system or other offsite source, according to a new court decision — highlighting the need for boards and their management to ensure that insurance-policy terminology is well-defined and covers what the board believes to be covered.
Attorney Richard C. Bennett of Cozen O'Connor writes at Lexology.com that in Michael J. Pichel v. Dryden Mutual Insurance Company the unanimous decision by a three-member intermediate appellate court now defines "plumbing system" as the pipes and other hardware on the insured premises itself. Noting that this was the first case of its kind in New York State, the court said other jurisdictions previously had reached the same conclusion.
The ruling holds that "water damage caused by a backup / overflow that originates from a pipe or clogged drain located within the insured's property line comes from the insured's plumbing system and is covered by the policy [while] if the cause of the backup / overflow is from outside the insured's property boundaries — such as a clogged municipal sewer that forces water from outside the insured's plumbing system to overflow — the sewer or drain exclusion is applicable."
What a Waste
The case involved a four-building rental-apartment complex where two of the buildings sustained substantial water damage when waste water entered the first-floor apartments through, among other things, toilets, bathtubs and condensation drains. After owner Pichel filed a timely property-loss notice, Dryden Mutual refused coverage on the basis that the loss fell within multiple exclusions, including one that applied to a loss caused by "water which backs up through sewers or drains."
Even after Pichel submitted a sworn proof-of-loss statement prepared by his insurance adjuster, contending that the cause of the loss was covered under the policy, Dryden Mutual again refused, leading to the lawsuit.
The court agreed with the company, reasoning that one exclusion stated the insurer had to pay "for loss caused by the accidental leakage, overflow or discharge of liquids or steam from a plumbing … system," a term other courts had defined as only the plumbing system on the covered property itself. It also noted that "the insurance policy does not define the terms sewer, drain, plumbing system, backup or overflow" — terms boards and others should insist on having defined for clarity that will avoid the ambiguity that led to the lawsuit here.
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Photo by Carol J. Ott