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New York’s Highest Court Holds “Ensuing Loss” Provision in Homeowners’ Policy Did Not Nullify “Water Loss” Exclusion or Render it Ambiguous

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On February 19, 2015, the New York Court of Appeals held that an “ensuing loss” provision contained in a homeowners’ insurance policy did not nullify the policy’s specific language excluding water damage or render it ambiguous. Accordingly, the insurer properly disclaimed coverage for the plaintiffs’ loss. Platek v. Town of Hamburg, 24 N.Y.3d 688 (N.Y. 2015).

After a subsurface water main abutting their property ruptured, causing water to flood into and severely damage their home’s finished basement, plaintiffs Frederik J. and Mary E. Platek (“Plaintiffs”) made a timely claim under their homeowners’ insurance policy (“Policy”), which was issued by defendant Allstate Indemnity Company (“Allstate”). The Policy excluded coverage for, inter alia, “loss to the property . . . consisting of or caused by 1. Flood . . . 2. Water . . . that backs up through sewers or drains . . . 3. Water . . . that overflows from a sump pump, sump pump well or other system designed for the removal of subsurface water . . . 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 residence premises” (emphasis added). However, the Policy included the following exception to the water loss exclusion, which the Court of Appeals characterized as an “ensuing loss” provision: “We do cover sudden and accidental physical loss caused by fire, explosion or theft resulting from items 1 through 4 listed above” (emphasis added).

After Allstate disclaimed coverage, Plaintiffs filed suit and moved for summary judgment, arguing that their claim was covered under the “ensuing loss” provision because they had “sustained a water intrusion loss” caused by “an explosion of the . . . water main.” In support of their motion, Plaintiffs submitted an expert affidavit opining that the water main “suddenly exploded from the internal water pressure being exerted on the pipe walls.” Allstate opposed Plaintiffs’ motion and cross-moved for a declaration that the Policy did not cover Plaintiffs’ claim. Allstate argued that the Policy’s “ensuing loss” provision required that the loss must “result from” the explosion; however, any explosion in this case “occurred earlier, outside the residence premises, when the water main broke.”

The Supreme Court ruled in favor of Plaintiffs, and Allstate appealed. The Appellate Division affirmed in part but split on the issue of whether the Policy’s “ensuing loss” provision applied. The Court of Appeals, on the other hand, found that Plaintiffs’ loss “clearly falls within item 4 of the water loss exclusion, which bars coverage for ‘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 residence premises’” and further concluded that the “ensuing loss” provision did not “resurrect coverage for the excluded peril.” “In sum,” the Court stated, “interpreting the insurance policy as Plaintiffs propose would contravene the water loss exclusion’s purpose, as expressed in unambiguous language, which is to preclude coverage for damages caused by the entry of water onto an insured’s property. . . . Permitting coverage under the facts of this case would force Allstate to insure a loss it did not contemplate and, indeed, affirmatively excluded.”

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