The Rogak Report: 27 Dec 2007 ** Property Insurance - Water Damage **
INSURED'S FAILURE TO PRESERVE REPLACED SECTION OF SEWER PIPE IS NO DEFENSE TO WATER DAMAGE CLAIM
G & S Realty 1, L.L.C. v St. Paul Fire and Marine Insurance Company,2006 NY Slip Op 30235(U) (Supreme Court, New York County) (Judge: Emily Jane Goodman) (Edited by Lawrence N. Rogak)
On November 24, 2003, plaintiff discovered that sewer water was backing up into the basement of its premises at 530 7th Avenue, New York, New York. Plaintiff contacted Par Plumbing Co. upon observing the sewer water infiltrating the premises.
Par Plumbing unsuccessfully attempted to clear what appeared to be a blockage from the pipes by using a snake and water jet. Plaintiff then contacted Alex Figliolia Contracting (AFC) , which determined that an emergency excavation was required. The excavation took place during the course of the Thanksgiving Day weekend, commencing on November 24, 2003 and concluding six days later on November 29, 2003. AFC removed a 20-25 foot section of the main sewer line, after excavating the area and pumping out water and soil. Plaintiff paid AFC $251,951.65 for the services.
Defendant insurer conceded that it was informed of the problem on November 25, 2003. Defendant maintained that an adjuster did not inspect the premises until December 2, 2003, on Tuesday after the Thanksgiving weekend (although plaintiff claims it was December 5, 2006), by which time the repair work had been completed. The adjuster stated in his affidavit that he was informed that "the allegedly damaged section of the pipe had been removed, presumably destroyed and was otherwise unavailable for inspection or testing." The adjuster stated that his company requested and reviewed documentation from plaintiff, including photographs. Defendant retained Gilbane CAT Response, an expert in determining causes of building loss, which noted that the photographs were not detailed enough to determine the cause of the failure and subsequent blockage. The report opined that, because of the depth of the pipe below the surface of the street, it was unlikely that a direct blow to the pipe caused it to fail. Further, the report opined that, given the age of the pipe, approximately 80 years old, normal aging and wear may have caused it to fail. The report concluded that it was impossible to determine what caused the blockage or what was the cause of the failure of the sewer line.
Defendant disclaimed coverage by letter dated May 4, 2004. Defendant based its disclaimer on the fact that the pipe was disposed of prior to defendant's inspection. Defendant contended that the disposal of the pipe was a breach of plaintiff's duties under the contract that require plaintiff to permit defendant to inspect the damaged property, as well as plaintiff's obligation to do all it can to preserve any rights it might have to recover its loss from others. Defendant further disclaimed on the basis of the "Earth Movement" exclusion and/or the "Wear, Tear, Deterioration, Animals" exclusion.
Plaintiff moved for summary judgment, arguing that it was entitled to summary judgment even assuming the truth of the insurer's allegations that the pipe break was caused by wear and tear, and that the insurer was not given an opportunity to inspect the damaged portion of the pipe. Plaintiff reached this conclusion because the policy contains an exception to the exclusion for wear and tear.
The policy provides:
"Wear , tear,deterioration, animals. We won't cover loss by or resulting from :
"wear and tear;"deterioration, mold, wet or dry rot , rust or corrosion
"If loss from . . water damage results, we'll pay for that resulting loss.
"Water damagemeans the accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of any part of a system or appliance, other than a sump system, containing water or steam."
The insurer contended that because plaintiff failed to maintain the pipe, it cannot be determined whether wear and tear, rust, deterioration and/or corrosion led to the damage. Defendant argued that, without inspecting the pipe, there is no way to determine that the discharge or leakage was the result of the pipe breaking apart or cracking, rather than due to some other cause. Defendant suggested that the pipe could have been punctured or otherwise damaged in some way other than being "broken apart" or "cracked." Defendant also maintained that plaintiff cannot prove that there was water damage, as defined in the exception to the exclusion for wear and tear. Further, the insurer contended that the amount plaintiff sought to recover for payments made to Par Plumbing and Alex Figiolia Contracting do not fit within the exception to the wear and tear exclusion because those payments were made to prevent loss to plaintiff's property and therefore are not a "loss" from water damage."
The Court held, "Defendant's arguments are unpersuasive. Defendant does not offer any basis for concluding that the pipe could have leaked ina manner that would not bring the exception to the exclusion into play. Plaintiff submitted detailed bills of the work that was done, as well the affidavit of Kenneth Sutherland, the Project Manager of AFC, stating that the water damage suffered was the result of a pipe break. Defendant fails to refute that evidence."
"While defendant speculates that there could have been some cause other than the pipe breaking or cracking, it does not suggest what that alternative might be, nor does it provide an expert affidavit of anyone who offers any other possibilities. Thus, while defendant did not have the opportunity to examine the pipe, it has not suggested that the photographs are inconsistent with the reported problem, or that there is another feasible explanation. It merely states that it cannot verify the cause of the failure and blockage. That is insufficient to deny coverage."
"Defendant contends that plaintiff's failure to retain the pipe was a violation of the insurance contract, and based on that failure, defendant may deny coverage. Defendant relies on the provisions of the policy that the insured... "If feasible, separate the damaged property from the undamaged and make an inventory of the damaged items.... Cooperate with us in the investigation and settlement of the claim. Permit us to inspect the damaged property and any records pertaining to your loss as many times as may be required. Permit us to take samples of damaged and undamaged property for testing and analysis."
"Defendant's contention that the failure to retain the pipe was a violation of plaintiff`s obligation to retain 'the damaged property' thereby vitiating coverage, is unpersuasive. The policy does not specify the time period for which the damaged property must be retained."
"Therefore what defendant really complains of is that it was not given enough time to inspect the damaged pipe prior to the repairs being completed. In view of the rule that insurance contracts are to be construed in favor of the insured, the Court cannot find that under the circumstances of this case, plaintiff breached its duties under the policy, thereby vitiating coverage. Further, the policy does not specify the result of an insured's failure to perform certain duties in the event of a loss, but merely states that any failure could affect coverage."
"Accordingly, defendant cites cases, from other jurisdictions, interpreting similar policy provisions, which hold that the failure to maintain the damaged property vitiates coverage, given the prejudice to the insurer. However, in the majority of those cases, the insured was seeking compensation for the damaged property itself, which is not the case here. Although one case cited by defendant held that the failure to retain the damaged property vitiated coverage because it prevented the insurer from mounting a defense on the cause of the loss, that insurer was apparently not notified of the loss in sufficient time for it to inspect the property prior to its sale."
"Here, defendant was notified of the loss and could have, but chose not to, inspect the pipe prior to the completion of the repairs."
"Defendant's argument that there is no evidence that a 'loss' occurred from water damage, because the payments plaintiff made were made to prevent a loss, is also without merit. The policy provides that the insured must... 'Do what is reasonable and necessary to protect covered property from further damage. Keep a record of your expenses for consideration in your claim.'"
"Upon discovering the sewer problem, plaintiff did what was necessary to repair the problem... When an insured takes action to prevent further damage, an insurer is not thereby relieved of its obligation to cover the damage." Benjamin Shapiro Realty Co. v. Agricultural Ins. Co., 287 AD2d 389 (1st Dept 2001); Royal Indem. Co. v. Grunberg, 155 AD2d 187 (3d Dept 1990) .
"Here, plaintiff's building manager's affidavit... states: This work had to be performed immediately due to the fact that our basement is approximately ten feet below the sewer line. In the event that this work was not immediately undertaken, this water would have flooded our basement and destroyed all of the mechanical equipment that is critical to the operation of the building including the electrical, heating and air conditioning systems as well as the boilers, pumps and locker roof facilities."
"Defendant cannot be relieved of its obligation merely because plaintiff did not wait until its building structure and systems were damaged before taking action, which itself would have been a violation of plaintiff's obligations under the policy."
"The remaining basis for denying coverage is that defendant contends that the pipe could have failed due to 'earth movement,' which is excluded under the policy. Once again, defendant claims that it cannot ascertain whether that is, in fact, the case, because the pipe was not available for inspection. The exclusions under the policy are for earthquake, landslide, mine subsidence, earth sinking and volcanic action. There is no evidence that any of those earth movements occurred, and defendant does not rely on any of them."
"Here, there is no evidence of settling, cracking or other disarrangement of foundations or other parts of realty, and defendant has not suggested that damage to the foundation or any other structure on the property occurred."
"Without such evidence, relying on the absence of the pipe is an inadequate basis upon which to deny coverage."
"Defendant has not disputed the amount that plaintiff spent to correct the problem and to prevent further damage. Plaintiff has specifically excluded any claim for replacing the damaged section of the pipe, and is claiming only the other expenses associated with the water damage. Therefore, the amount requested is not at issue, and plaintiff's request for damages in the amount of $253,914.00 is granted."
"Accordingly, it is hereby ORDERED that plaintiff's motion for summary judgment is granted..."