A New York appellate court recently found a property insurance policy to be ambiguous on losses from overflow of water from a plumbing system, entitling the policyholder to coverage. It was the first of such a holding for a New York court, and its ruling of coverage for such loss is consistent with other jurisdictions interpreting similar policy provisions.
In, Pichel v. Dryden Mutual Insurance Company,1 the policyholder sustained water damage to two of four apartment buildings when waste water entered the first level through drains, tubs, and commodes. The insurance carrier denied coverage and cited the water damage exclusion which stated:
Water which backs up through sewers or drains.
Another exclusion cited by the insurance carrier stated there was no coverage:
For loss caused by repeated or continuous discharge, or leakage of liquids or steam from within a plumbing system.
This second exclusion also provided language of coverage indicating that the policy covered:
Loss caused by the accidental leakage, overflow or discharge of liquids or steam from a plumbing system.
The trial court found the water exclusions ambiguous when read together. The trial court held the provisions should be read together so they applied to a backup that originates off the insured property, but not to an occurrence originating within the insured’s plumbing system.
The appellate court affirmed the trial court ruling on the ambiguity and finding coverage. The appellate court noted that the policy did not define the terms sewer, drain, plumbing system, backup or overflow. The court reasoned in its opinion that when the exclusion and coverage provisions were read together they were ambiguous as to losses resulting from an overflow from sewers, drains, or plumbing systems. The court held:
[W]ater 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; conversely, 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.
The appellate court opinion contains a thorough analysis of the policy language. The outcome was consistent with cases in other jurisdictions – such as Florida in Cheetham v. Southern Oak Insurance Company2 – discussed in my post, Florida Appellate Court Holds Water Loss That Results From A Deteriorated Pipe Is Covered. This was a good outcome for the policyholder and it makes common sense under the circumstances. The plumbing system within or under the property of the insured is a necessary part for which consumers purchase insurance.