Six to eight inches of rain fell in my neighborhood this past Friday night. It was all the talk of our neighborhood block party last night, with many of my neighbors recounting the inches of standing water in their basements the morning before. When I drove out of my neighborhood to go fishing yesterday morning at 6:30, I could see water bubbling up from the storm sewers at the end of my street. Clearly the storm sewers were not capable of handling the torrential water volume. Luckily, our basement stayed dry, probably because our house sits up a bit higher than most. Many of my neighbors were not so fortunate.
Municipal Liability
Tricky. The law in New York concerning a municipality's liability to a property owner for the failure of its storm sewer system to control surface water runoff is summarized nicely in American Ins. Co. v. City of Jamestown, 914 F. Supp. 2d 377 (WDNY 2012):
To provide coverage for such damage, there is the Water Back-up and Sump Discharge or Overflow endorsement, HO 04 95. This endorsement typically provides $5,000 of coverage for back up through a sewer or drain or overflow or discharge of a sump, sump pump or related equipment, even if the equipment suffers a mechanical breakdown. For example, if the sump pump motor burns out and the basement floods, there is $5,000 of coverage for that damage. The coverage is for water or waterborne material, so coverage is provided for damage caused by items floating in the water.
Sump Pump Malfunction
Even before the HO-3 excluded coverage for water damage from a backup through or failed sump pump, the New York courts upheld denials of coverage. In Goodman v. Broome County Co-Operative Fire Ins. Co. (135 A.D.2d 906 [3rd Dept. 1987]), the Appellate Division, Third Department rejected the insureds' argument that the "accidental discharge or overflow of liquids or steam from a plumbing * * * system" peril provided coverage for water damage to the insureds' basement that occurred when a sump pump the insureds had installed in their basement to remove any water that seeped through the foundation walls malfunctioned.
Instead, the court agreed with the insurer that the policy's exclusion of coverage for loss caused by "water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through or into a building * * * foundation * * * or other structure" applied to negate coverage. The court agree that it was evident that the water originated from a natural seepage through the basement walls and reasoned:
You wouldn't be the first if you are confused over what coverage is and is not provided under the typical homeowners policy for water backup losses. When two or more provisions of an insurance policy when read together are unclear, courts may find that creates an ambiguity. Ambiguities are construed against the drafter -- the person or entity that drafted the language -- and often result in a finding or award of coverage.
Such was the case, in a sense, in Pichel v. Dryden Mut. Ins. Co. (117 AD3d 1267 [3rd Dept. 2014]). Pichel owed a four-building apartment complex, which was covered by an insurance policy issued by Dryden Mutual. While the policy was in effect, 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. Dryden Mutual denied coverage on the basis that the loss fell within multiple exclusions in the policy, including the policy's "Water Damage" exclusion, which applies to a loss caused by "water which backs up through sewers or drains." Pichel contended in response that the loss was covered because it was "caused by the accidental leakage, overflow or discharge of liquids or steam from a plumbing ... system[.]"
In MODIFYING the lower court's order that had granted summary judgment to Pichel and denied Dryden Mutual's cross motion for summary judgment, the Appellate Division, Third Department, held that when the water backup exclusion and accidental leakage/overflow provision "are read together, an ambiguity exists in the insurance policy as to losses resulting from a backup and/or overflow from sewers, drains and/or plumbing systems." Specifically, the appellate court agreed with the lower court's resolution of the perceived ambiguity by ruling that the policy's "backs up through sewers or drains" exclusion applied only to backups that originated off the insured premises:
Municipal Liability
Tricky. The law in New York concerning a municipality's liability to a property owner for the failure of its storm sewer system to control surface water runoff is summarized nicely in American Ins. Co. v. City of Jamestown, 914 F. Supp. 2d 377 (WDNY 2012):
In general, a municipality in New York owes no common law duty of care to control surface water runoff, to keep streams free of obstructions, or to provide flood protection. See e.g., O'Donnell v. City of Syracuse, 184 N.Y. 1, 10-11, 76 N.E. 738 (1906); Cashin v. City of New Rochelle, 256 N.Y. 190, 195, 176 N.E. 138 (1931); Office Park Corp. v. County of Onondaga, 64 A.D.2d 252, 258, 409 N.Y.S.2d 854 (4th Dep't 1978). If a municipality builds a storm water drainage system or sewer, it is ordinarily immune from liability if the drainage system is inadequate. See Seifert v. Brooklyn, 101 N.Y. 136, 145-46, 4 N.E. 321 (1886); Carbonaro v. Town of North Hempstead, 97 A.D.3d 624, 948 N.Y.S.2d 645 (2d Dep't 2012); but see, Klebe v. Tri-Municipal Sewer Com'n, 160 A.D.2d 677, 679, 553 N.Y.S.2d 455 (2d Dep't 1990) (municipal immunity for an exercise of policy or operational judgment is ordinarily qualified immunity).
If the municipality learns of an inadequacy in its storm water drainage system, it may be legally-bound to exercise reasonable care timely to address the inadequacy, however. Seifert v. Brooklyn, supra. A municipality may also face liability where a drainage system is negligently constructed, Smith v. City of New York, 66 N.Y. 295, 296 (1876), or where the municipality breaches the duty to "exercise ... a reasonable degree of watchfulness" in the inspection and maintenance of a drainage system. McCarthy v. City of Syracuse, 46 N.Y. 194, 198 (1871); Fireman's Fund Ins. Co. v. County of Nassau, 66 A.D.3d 823, 824, 887 N.Y.S.2d 242 (2d Dep't 2009).
* * * * *The New York legislature, in N.Y. Gen. Mun. Law § 50-e(4), has clarified the authority of municipalities to limit their duty of care in derogation of the common law by specifically allowing municipalities to require prior written notice of certain potential problems. See generally, Gorman v. Town of Huntington, 12 N.Y.3d 275, 277, 879 N.Y.S.2d 379, 907 N.E.2d 292 (2009) (quoting Poirier v. City of Schenectady, 85 N.Y.2d 310, 313, 624 N.Y.S.2d 555, 648 N.E.2d 1318 (1995)); Barry v. Niagara Frontier Transit System, 35 N.Y.2d 629, 633, 364 N.Y.S.2d 823, 324 N.E.2d 312 (1974). A municipality is authorized by § 50-e(4) to adopt a local law or charter provision requiring that the municipality be given prior written notice of a dangerous or obstructed condition and a reasonable amount of time to address the condition before the municipality will incur liability for negligent malfeasance. Poirier v. City of Schenectady, 85 N.Y.2d 310, 313, 624 N.Y.S.2d 555, 648 N.E.2d 1318 (1995); Amabile v. City of Buffalo, 93 N.Y.2d 471, 473, 693 N.Y.S.2d 77, 715 N.E.2d 104 (1999) ("Prior notification laws are a valid exercise of legislative authority."); see White v. Village of Hempstead, 819 N.Y.S.2d 463, 13 Misc.3d 471, 474-77 (Sup.Ct. Nassau Co.2006) (N.Y. Const. Art. IX, § 2(c) and N.Y. Mun. Home Rule Law § 10 authorize municipalities to adopt prior notification requirements).
* * * * *
There are two exceptions to New York municipal prior notification laws. First, if a municipality created a dangerous or obstructed condition by an act of affirmative negligence, it may not avoid liability by requiring compliance with a legislative prior notification requirement. Amabile v. City of Buffalo, 93 N.Y.2d at 474, 693 N.Y.S.2d 77, 715 N.E.2d 104; Poirier v. City of Schenectady, 85 N.Y.2d at 314-15, 624 N.Y.S.2d 555, 648 N.E.2d 1318. Affirmative negligence usually requires an act that "immediately results in a dangerous [or obstructed] condition." Oboler v. City of New York, 8 N.Y.3d 888, 889, 832 N.Y.S.2d 871, 864 N.E.2d 1270 (2007) (quoted in San Marco v. Village/Town of Mt. Kisco, 16 N.Y.3d 111, 116, 919 N.Y.S.2d 459, 944 N.E.2d 1098 (2010)). A reasonably watchful municipality recognizes its own actions that immediately result in danger or a risk of obstruction and is duty bound to take reasonable steps to avert the danger or risk, even in the absence of compliance with a prior written notice requirement. Id. A municipality's passive negligence is insufficient to satisfy this exception to a prior notification requirement. Monteleone v. Inc. Vil. of Floral Park, 74 N.Y.2d 917, 919, 550 N.Y.S.2d 257, 549 N.E.2d 459 (1989).
Second, a municipal prior notification requirement will not apply where a dangerous or obstructed condition was created by a municipality's special use of property. Amabile v. City of Buffalo, 93 N.Y.2d at 474, 693 N.Y.S.2d 77, 715 N.E.2d 104. The special use must confer a special benefit upon the municipality. Oboler v. City of New York, 8 N.Y.3d at 890, 832 N.Y.S.2d 871, 864 N.E.2d 1270. For example, a missing manhole cover on a street may be within the special use exception of a prior notification requirement. See Ocasio v. City of Middletown, 148 A.D.2d 431, 432, 538 N.Y.S.2d 586 (1st Dep't 1989).
Chance that my neighbors with flooded basements or their homeowers insurers as their subrogees will be able to make a successful claim against the Town of Pendleton for damages, especially if there was no prior notice of any inadequacy of the storm sewer system? Slim to none.
Insurance Coverage
It should go without saying that when it comes to any insurance coverage analysis or evaluation, policy language controls. So find and read your policy.
Many if not most homeowners insure their homes under insurance policies that utilize as their main policy form the Insurance Services Office's copyrighted HO-3 endorsement. While there are many editions of that policy endorsement, the October 2000 edition of that endorsement provides the following with respect to dwelling (Coverage A) and personal property (Coverage C) coverage for water damage from backed up storm sewers or failed sump pumps:
SECTION I – PROPERTY COVERAGES
A. Coverage A – Dwelling1. We cover:
a. The dwelling on the "residence premises" shown in the Declarations, including structures attached to the dwelling[.]
C. Coverage C – Personal Property1. Covered Property
We cover personal property owned or used by an "insured" while it is anywhere in the world.
SECTION I – PERILS INSURED AGAINST
A. Coverage A – Dwelling And Coverage B – Other Structures
1. We insure against risk of direct physical loss to property described in Coverages A and B.
2. We do not insure, however, for loss:a. Excluded under Section I – Exclusions;
c. Caused by:
(5) Mold, fungus or wet rot. However, we do insure for loss caused by mold, fungus or wet rot that is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure if such loss results from the accidental discharge or overflow of water or steam from within:
(a) A plumbing, heating, air conditioning or automatic fire protective sprinkler system, or a household appliance, on the "residence premises"; or
(b) A storm drain, or water, steam or sewer pipes, off the "residence premises".
For purposes of this provision, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment[.]
B. Coverage C – Personal Property
We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I – Exclusions.
12. Accidental Discharge Or Overflow Of Water or Steama. This peril means accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance.
b. This peril does not include loss:(1) To the system or appliance from which the water or steam escaped;
(2) Caused by or resulting from freezing except as provided in Peril Insured Against 14. Freezing;
(3) On the "residence premises" caused by accidental discharge or overflow which occurs off the "residence premises"; or
(4) Caused by mold, fungus or wet rot unless hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure.c. In this peril, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment.
d. Section I – Exclusion A.3. Water Damage, Paragraphs a. and c. that apply to surface water and water below the surface of the ground do not apply to loss by water covered under this peril.
SECTION I – EXCLUSIONS
A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
3. Water Damage
Water Damage means:
a. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
b. Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment; or
c. Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure;
caused by or resulting from human or animal forces or any act of nature.
The HO-3 specifically excludes water that overflows from sumps, sump pumps, or related equipment or water that backs-up through sewers or drains. However this is how many losses occur. Sump pumps fail or are unable to handle the flow of water during a severe storm or flood, and sewers or drains may back-up due to a stoppage in the flow. Overflows are excluded for sumps because that is a common cause of loss; the sump cannot handle the volume of water it receives. If the drain backs up and overflows because of heavy rainstorms, the HO-3 excludes coverage for the resulting water damage.Direct loss by fire, explosion or theft resulting from water damage is covered.
To provide coverage for such damage, there is the Water Back-up and Sump Discharge or Overflow endorsement, HO 04 95. This endorsement typically provides $5,000 of coverage for back up through a sewer or drain or overflow or discharge of a sump, sump pump or related equipment, even if the equipment suffers a mechanical breakdown. For example, if the sump pump motor burns out and the basement floods, there is $5,000 of coverage for that damage. The coverage is for water or waterborne material, so coverage is provided for damage caused by items floating in the water.
Sump Pump Malfunction
Even before the HO-3 excluded coverage for water damage from a backup through or failed sump pump, the New York courts upheld denials of coverage. In Goodman v. Broome County Co-Operative Fire Ins. Co. (135 A.D.2d 906 [3rd Dept. 1987]), the Appellate Division, Third Department rejected the insureds' argument that the "accidental discharge or overflow of liquids or steam from a plumbing * * * system" peril provided coverage for water damage to the insureds' basement that occurred when a sump pump the insureds had installed in their basement to remove any water that seeped through the foundation walls malfunctioned.
Instead, the court agreed with the insurer that the policy's exclusion of coverage for loss caused by "water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through or into a building * * * foundation * * * or other structure" applied to negate coverage. The court agree that it was evident that the water originated from a natural seepage through the basement walls and reasoned:
Even accepting plaintiffs' premise that the sump pump was part of the plumbing system, the water did not emanate from an "accidental discharge or overflow" from that mechanical device as required by paragraph 15 of the policy. Nor is there any inconsistency between the coverage and exclusion provisions recited above, for both confirm that coverage is not available for damage occasioned by the continuous seepage of water from natural sources.Backup of Sewers or Drains
You wouldn't be the first if you are confused over what coverage is and is not provided under the typical homeowners policy for water backup losses. When two or more provisions of an insurance policy when read together are unclear, courts may find that creates an ambiguity. Ambiguities are construed against the drafter -- the person or entity that drafted the language -- and often result in a finding or award of coverage.
Such was the case, in a sense, in Pichel v. Dryden Mut. Ins. Co. (117 AD3d 1267 [3rd Dept. 2014]). Pichel owed a four-building apartment complex, which was covered by an insurance policy issued by Dryden Mutual. While the policy was in effect, 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. Dryden Mutual denied coverage on the basis that the loss fell within multiple exclusions in the policy, including the policy's "Water Damage" exclusion, which applies to a loss caused by "water which backs up through sewers or drains." Pichel contended in response that the loss was covered because it was "caused by the accidental leakage, overflow or discharge of liquids or steam from a plumbing ... system[.]"
In MODIFYING the lower court's order that had granted summary judgment to Pichel and denied Dryden Mutual's cross motion for summary judgment, the Appellate Division, Third Department, held that when the water backup exclusion and accidental leakage/overflow provision "are read together, an ambiguity exists in the insurance policy as to losses resulting from a backup and/or overflow from sewers, drains and/or plumbing systems." Specifically, the appellate court agreed with the lower court's resolution of the perceived ambiguity by ruling that the policy's "backs up through sewers or drains" exclusion applied only to backups that originated off the insured premises:
In our view, when the exclusion and coverage provisions at issue here are read together, an ambiguity exists in the insurance policy as to losses resulting from a backup and/or overflow from sewers, drains and/or plumbing systems. Although the resolution of this ambiguity appears to be an issue of first impression in this state, Supreme Court's analysis — that a plumbing system, as referenced in the coverage provision, includes drains that are on the insured's property — is consistent with decisions in other jurisdictions that have interpreted the interplay of competing provisions similar to those in question here (see Hallsted v Blue Mtn. Convalescent Ctr., Inc., 23 Wash App 349, 351-352, 595 P2d 574, 575 [1979], review denied 92 Wash 2d 1023 [1979]; Jackson v American Mut. Fire Ins. Co., 299 F Supp 151, 156 [MD NC 1968], affd 410 F2d 395 [4th Cir 1969]; Cheetham v Southern Oak Ins. Co., 114 So 3d 257, 262-263 [Fla 2013], review denied 129 So 3d 1069 [2013]; Kozlowski v Penn Mut. Ins. Co., 295 Pa Super 141, 146, 441 A2d 388 [1982]; Haines v United Sec. Ins. Co., 43 Colo App 276, 277-278 [1979]). In short, these cases stand for the proposition 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; 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 (see also Cantanucci v Reliance Ins. Co., 43 AD2d 622, 622-623 [1973], affd 35 NY2d 890 [1974] [loss from ruptured sewer line buried below insured's foundation wall was covered loss as sewer pipe was part of plumbing system]; compare Newlo Realty Co. v U.S. Fid. & Guar. Corp., 213 AD2d 295, 295 [1995] [an exclusion provision applied to blocked bathroom sink drain]).
It is important to bear in mind that the policy endorsement at issue in Pichel was not an HO-3. It was an Underwriters Ratings Board form that did not contain any reference to a sump or sump pump in its backup of sewers or drains exclusion.Significantly, defendant has failed to establish that its interpretation — that the loss is excluded from coverage so long as water backs up through a sewer or drain, regardless of where the sewer or drain is located — is the only fair interpretation of the two provisions (see Pioneer Tower Owners Assn. v State Farm Fire & Cas. Co., 12 NY3d 302, 307 [2009]; Essex Ins. Co. v Grande Stone Quarry, LLC, 82 AD3d 1326, 1329 [2011]; Villanueva v Preferred Mut. Ins. Co., 48 AD3d 1015, 1017 [2008]; Cantanucci v Reliance Ins. Co., 43 AD2d at 622-623). Further, defendant's interpretation of the exclusion provision essentially renders meaningless the coverage for "overflow" of liquids from a plumbing system as provided in the coverage provision (see generally Cragg v Allstate Indem. Corp., 17 NY3d at 122; County of Columbia v Continental Ins. Co., 83 NY2d at 628).[2] On the other hand, plaintiff's interpretation, as adopted by Supreme Court, accords full effect to both the exclusion and coverage provisions and is consistent with the above delineated case law of other jurisdictions. Accordingly, Supreme Court correctly resolved the ambiguity in plaintiff's favor and denied defendant's cross motion for summary judgment on this ground.