Many policyholder disputes involve an insurance contract that includes a provision dealing with water damage. While there are various constructions of the water damage provision, the issue of water that backs up or overflows from a sewer or drain arises frequently. Insurance companies will often deny claims based on a policy provision excluding any loss or damage caused directly or indirectly from water backflow.
A case that deals with this issue is Junius Development, Inc. v. New York Marine and General Insurance Company,1 (Junius). In Junius, the insured sued the insurer to recover damages for breach of contract. The action was based on damages the plaintiff’s building sustained after a drainpipe, clogged with construction debris, failed and released water into the building – including the basement.
Junius alleged that the damages occurred after a subcontractor emptied the contents of a rooftop water tank into a drainpipe. A trap inside the pipe was clogged with construction debris ultimately causing the drainpipe to fail inside the premises releasing water into various areas in the building. The plaintiff submitted a claim and the insurance company denied coverage on the basis of a policy provision which excluded coverage for loss or damage ensuing from backup or overflow from a drain.
After the litigation was commenced the carrier moved to dismiss the case on the basis of the aforementioned policy exclusion. The court applied the following burden of proof on the carrier for it to prevail in its motion:
In order for a policy exclusion to be enforced, the language must be clear and
Unmistakable, and the carrier must establish that the exclusion applies in the
particular case and is subject to no other reasonable interpretation.2
The court concluded that the carrier failed to meet its burden. Given the facts of the case the court reasoned that to the ordinary business person the loss was most immediately and visibly caused by the separation of the drain pipe which resulted in water flowing into the basement and therefore the exclusion did not apply.
This case illustrates how a carrier’s denial on the basis of a policy exclusion involving water backup or overflow may not be enforceable. If your claim has been denied on this basis it would be advisable to consult with a competent attorney as to any potential recourse you might have.
1 Junius Development, Inc. v. New York Marine and General Ins. Co., 852 N.Y.S. 2d 185 (App. Div. 2d Dep’t 2008).
2 Seaboard Sur. Co. v. Gillette Co., 64 N.Y. 2d 304, 311, 486 N.Y.S. 2d 873, 476 N.E. 2d 272 (N.Y. 1984).
