Court Rejects “Ensuing Loss” Exception to Subsurface Water Damage Exclusion

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

Water damage is one of the most destructive perils that can cause damage to your home.  Although homeowners coverage provides financial protection for many forms of water damage, these claims can be among the most difficult to pursue.  There are many factors that can affect whether a particular incident resulting in water damage is covered, such as the source of the water, suddenness of the water release and the way the water enters the home.

A recent case decided by the New York Court of Appeals (the state’s highest court) provides an example of the complexity of water damage claims.  In Platek v. Town of Hamberg, et al, the court ruled that a provision excluding damage caused by water from below the surface of the ground constituted an unambiguous bar to a claim for damage to the insureds’ basement caused by water from a burst water main.  The insureds’ contended that the claim was covered by an ensuing loss exemption to the exclusion.  The decision highlights the historical basis for ensuing loss provisions and the limited situations where they can restore otherwise excluded coverage.

The policyholders incurred $110,000 in damage to their home’s finished basement when a subsurface water main burst causing water to seep up into the basement.  Allstate denied the homeowners’ claim based on an exclusion that provided the policy “does not cover loss to the property . . . consisting of or caused by . . . 4. Water . . . on or below the surface of the ground, regardless of its source [, including] water . . . which exerts pressure on or flows, seeps or leaks through any part of the resident’s premises.”

The policyholders countered by arguing that the damage was covered by an exception to this exclusion which provides: “We do cover sudden and accidental direct physical loss caused by fire, explosion or theft resulting from items 1 through 4 listed above.”  In support of this contention, the insureds’ submitted an affidavit from an engineer indicating that the water main “suddenly exploded from the internal water pressure being exerted on the pipe walls [and hence] the explosion resulted from internally pressurized water that was supposed to be contained in a buried underground pipe.”

The policyholders prevailed in the trial court, and the decision finding that the insurer was liable for the loss was upheld by the Appellate Division.  However, the highest court for the state reversed the decision and ruled in favor of the insurer.  The court’s opinion indicated that the policyholders bear the burden of proof when the question of coverage is entirely based on an exception to a policy exclusion.  The judges also ruled an ensuing loss provision does not apply to a loss caused by perils expressly excluded by the policy but rather applies to damage to other property “wholly separate” from the defective property.

Because the water damage exclusion in the policy clearly applied to damage to the insureds’ basement caused by the burst water main, the only issue before the court was whether the exception to the exclusion restored coverage. The court observed that ensuing loss provisions were a product of the San Francisco earthquake of 1906.  According to the court, an “ensuing loss” involves a new loss to property that is a different type than that expressly excluded by the policy.  The court reasoned that the insureds’ reading of the policy would essentially eviscerate the subsurface water damage exclusion, so the insurer would be covering a risk that was not anticipated by the policy.

This decision illustrates the complex issues involved in water damage claims.  Because insurers often deny such claims, homeowners should speak to an experienced Miami homeowners insurance attorney to protect their rights and remedies.  An experienced attorney can help you counter such denials.   My law firm represents policyholders in claims disputes in Miami and throughout Florida.  The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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