Frederick J. Platek v. Town of Hamberg / Allstate Indemnity Company , 24 N.Y.3d 688 ( 2015 )

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 21
Frederick J. Platek, et al.,
Respondents,
v.
Town of Hamberg, et al.,
Defendants,
Allstate Indemnity Company,
Appellant.
Robert H. King, Jr., for appellant.
Patrick J. Mackey, for respondents.
READ, J.:
On September 7, 2010, a subsurface water main abutting
the property of plaintiffs Frederick J. and Mary E. Platek
ruptured, causing water to flood into and severely damage their
home's finished basement. Plaintiffs immediately made a claim
under their homeowners' insurance policy, which was issued by
defendant Allstate Indemnity Company (Allstate). The insuring
agreement excludes property damage caused by water, with an
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exception for certain sudden and accidental direct physical
losses; specifically, the section entitled "Losses We Do Not
Cover under Coverages A [Dwelling1 Protection] and B [Other
Structures Protection]" provides as follows:
"[Allstate does] not cover 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."2
We do cover sudden and accidental direct
physical loss caused by fire, explosion or
theft resulting from items 1 through 4 listed
above" (emphases added).
On September 9, 2010, Allstate disclaimed coverage,
based on item 4 of the policy's water loss exclusion. For the
reasons that follow, we conclude that the policy's unambiguous
language excludes the water damage to plaintiffs' home from
1
The policy defines "Dwelling" as "a one, two, three or four
family building structure, identified as the insured property on
the Policy Declarations, where [the policyholder] reside[s] and
which is principally used as a private residence."
2
The policy defines "Residence Premises" as "the dwelling,
other structures and land located at the address stated on the
Policy Declarations."
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coverage, and the exception does not nullify the water loss
exclusion or render it ambiguous.
I.
Plaintiffs commenced this action by summons and
complaint dated and filed on November 23, 2010. They alleged
that Allstate had improperly disclaimed coverage, causing them to
suffer damages in excess of $100,000.3 Then on March 11, 2011,
plaintiffs moved for summary judgment on their breach-of-contract
claim, asking Supreme Court to declare that the policy covered
their loss and to direct Allstate to pay their claim. Plaintiffs
asserted that because they had "sustained a water intrusion loss"
caused by "an explosion of the . . . water main," their claim
fell within the exception to the water loss exclusion.
In support of their motion, plaintiffs submitted the
affidavit of an engineer, who stated that the water main
"suddenly exploded from the internal water pressure being exerted
on the pipe walls. Hence, the explosion resulted from internally
pressurized water that was supposed to be contained in a buried
underground pipe." He opined that plaintiffs had therefore
suffered "direct physical loss to their home and other property,"
which was "caused by an explosion resulting from internally
pressurized water suddenly and accidentally bursting from the
underground pipe."
3
Plaintiffs also sued the Town of Hamburg and the Erie
County Water Authority, attributing the water main's rupture to
their negligence.
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By notice of motion dated April 7, 2011, Allstate
opposed plaintiffs' motion and cross-moved for summary judgment
to dismiss the complaint against it on the ground that the policy
did not cover plaintiffs' claim, as a matter of law. Quoting the
water loss exclusion, Allstate pointed out that the policy
excludes property losses "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." Allstate added that the exception did not apply
because, under that provision's wording, any "loss caused by . .
. explosion" must "result[] from" the explosion. Here, by
contrast, any explosion "occurred earlier, outside the residence
premises, when the water main broke."
By order granted May 6 and filed May 12, 2011, Supreme
Court granted plaintiffs' motion and denied Allstate's cross
motion, and declared that plaintiffs' loss was covered under the
policy and Allstate was required to pay the claim. Allstate
appealed, and on July 6, 2012, the Appellate Division, with two
Justices dissenting in part, modified Supreme Court's order by
vacating the declaration and otherwise affirmed (97 AD3d 1118
[4th Dept 2012]). All the Justices agreed that, since plaintiffs
asserted a cause of action against Allstate for breach of
contract, Supreme Court erred by "declaring" that plaintiffs'
claimed loss was covered under the policy and directing payment.
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The court split on the issue of whether the policy's sudden and
accidental exception to the water loss exclusion applied.
With respect to the exception, the majority explained
that
"Allstate characterizes [it] as an 'ensuing
loss' provision, and . . . thus interprets
[it] to provide that any initial loss to the
insured's property caused by the conditions
set forth in item 4, i.e., '[w]ater . . . on
or below the surface of the ground,' is not
covered under the policy but that, in the
event that there is an 'explosion . . .
resulting from' that initial loss, any
secondary or ensuing loss caused by the
explosion is covered. Plaintiffs disagree
that there must be a secondary or ensuing
loss, and they assert that the exception
applies because there was an 'explosion [of
the water main] resulting from' the
conditions set forth in item 4, i.e.,
'[w]ater . . . below the surface of the
ground,' and causing 'sudden and accidental
direct physical loss' to their property" (id.
at 1120).
Concluding that both interpretations were reasonable, the
majority held that the policy was therefore ambiguous and should
be construed in favor of plaintiffs, the insureds.
The dissenting Justices observed that plaintiffs, not
Allstate, bore the burden of demonstrating the applicability of
the exception, and reasoned that, in any event, the policy's
language was not ambiguous. In their view,
"interpreting the exception to cover a loss
where an explosion is caused by water outside
the residence . . . contravenes the purpose
of the water loss exclusion, which is to
preclude coverage for losses caused by water
entry into the residence. Rather, the
language 'resulting from' is properly
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interpreted as referring to an 'ensuing
loss,' i.e. a loss that follows or takes
place after an excluded event. In other
words, the exception refers to a separate
occurrence -- fire, explosion or theft --
that results from the water damage to the
residence, and does not refer to the water
damage itself. For example, a fire or
explosion triggered by water damage to a
circuit breaker or appliance, or a theft that
occurs in an empty house rendered
uninhabitable by water damage" (id. at 1123-
1124 [internal citations omitted]).
Plaintiffs and Allstate subsequently entered into a
stipulation whereby the parties agreed that plaintiffs' damages
totaled $110,000. Allstate now appeals pursuant to CPLR 5601 (d)
from the resulting judgment granted on January 13 and entered on
January 14, 2014.
II.
Three basic principles guide our analysis. First,
"[i]n determining a dispute over insurance coverage, we first
look to the language of the policy" (Consolidated Edison Co. of
N.Y. v Allstate Ins. Co., 98 NY2d 208, 221 [2002]).
Concomitantly, we "construe the policy in a way that affords a
fair meaning to all of the language employed by the parties in
the contract and leaves no provision without force and effect"
(id. at 221-222 [internal quotation marks omitted] [emphasis
added]).
Second, although the insurer has the burden of proving
the applicability of an exclusion (see Seaboard Sur. Co. v
Gillette Co., 64 NY2d 304, 311 [1984]), it is the insured's
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burden to establish the existence of coverage (see Lavine v
Indemnity Ins. Co., 260 NY 399, 410 [1933]). Thus, "[where] the
existence of coverage depends entirely on the applicability of
[an] exception to the exclusion, the insured has the duty of
demonstrating that it has been satisfied" (Borg-Warner Corp. v
Insurance Co. of N. Am., 174 AD2d 24, 31 [3d Dept 1992], lv
denied 80 NY2d 753 [1992]; see also Northville Indus. Corp. v
National Union Fire Ins. Co. of Pittsburgh, Pa., 89 NY2d 621, 634
[1997]).
And finally, "[w]here a property insurance policy
contains an exclusion with an exception for ensuing loss, courts
have sought to assure that the exception does not supersede the
exclusion by disallowing coverage for ensuing loss directly
related to the original excluded risk" (Narob Dev. Corp. v
Insurance Co. of N. Am., 219 AD2d 454, 454 [1st Dept 1995], lv
denied 87 NY2d 804 [1995]; see also ITT Indus. v Factory Mut.
Ins. Co., 303 AD2d 177, 177 [1st Dept 2003] [rejecting
plaintiff's "untenable interpretation that the policy provided
coverage for a resulting loss of an excluded risk"]; Montefiore
Medical Center v American Protection Ins. Co., 226 F Supp 2d 470,
479 [SD NY 2002] [where the policy excluded losses for faulty
workmanship, the court rejected the insured's claim for the
collapse of a defectively designed facade, explaining that "[a]n
ensuing loss provision does not cover loss caused by the excluded
peril, but rather covers loss caused to other property wholly
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separate from the defective property itself"]).
In this case, plaintiffs' loss occurred when water from
a burst water main flowed onto their property, flooding the
basement of their home. Accordingly, their 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" (see Neuman v United Servs. Auto. Assn., 74
AD3d 925, 926 [2d Dept 2010] [similarly-worded water loss
exclusion precludes coverage for water damage to basement];
Harleysville Ins. Co. of N.Y. v Potamianos Props., LLC, 108 AD3d
1110, 1111-1112 [4th Dept 2013] [accord]).
Turning next to the sudden and accidental exception,
this clause is properly characterized as an ensuing loss
provision, which "provide[s] coverage when, as a result of an
excluded peril, a covered peril arises and causes damage"
(Ostrager & Newman, Insurance Coverage Disputes § 21.04 [h] at
1721 [17th ed 2015]). These provisions are a product of the San
Francisco earthquake of 1906. In the wake of that natural
disaster, some insurers argued that because earth movement was an
excluded peril under property insurance policies, so was the
damage caused by the devastating fires sparked by gas emitted
from pipes broken by the shaking of the earth, even though fire
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was a covered peril. The California legislature enacted statutes
to prevent insurers from disclaiming coverage in the future under
such circumstances. To comply with California law and similar
statutes enacted by other states, insurers then added exceptions
to their earthquake exclusions to preserve coverage for ensuing
fires. Ensuing loss clauses were subsequently incorporated into
other types of exclusions; for example, exclusions in all-risks
policies for faulty workmanship (see generally James S.
Harrington, "Lessons of the San Francisco Earthquake of 1906:
Understanding Ensuing Loss in Property Insurance," 37 The Brief,
Summer 2008; Insurance Glossary of Insurance and Risk Management
Terms, "ensuing loss clause,"
http://www.irmi.com/online/insurance-glossary/terms/e/ensuing-
loss-clause.aspx). Thus, true to its historical origins and
purpose, the ensuing loss exception
"preserve[s] coverage for insured losses,
such as the fires after the San Francisco
earthquake, and [does not] create a 'grant-
back' through which coverage may be had for
the original excluded loss, whether it be an
earthquake, a design defect, or any other
excluded cause of loss" (Harrington, supra,
at 32).
Stated another way, an ensuing loss "at least requires a new loss
to property that is of a kind not excluded by the policy" (id. at
31); it "[does not] resurrect coverage for an excluded peril"
(id. at 34).
Plaintiffs nonetheless argue that the water damage to
their basement was covered because it was "caused by an explosion
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of the . . . water main resulting from highly pressurized water
located on or below the surface of the ground," or, as stated
slightly differently elsewhere in their brief, that "the
explosion occurred as a result of water that was exerting
pressure on the Property" or "the Residence." But this is not
what plaintiffs' expert said. He opined that "highly pressurized
water" exerted internal water pressure on the walls of a pipe
buried off plaintiffs' property; not that an explosion resulted
from subsurface water "exert[ing] pressure on . . . any part of
the residence premises" per item 4 of the water loss exclusion.
Additionally, plaintiffs ignore the water loss
exclusion's prefatory language, which specifies that "[Allstate
does] not cover loss to the property . . . consisting of or
caused by: [any of the four items of water loss]" [emphases
added]). This phrase is an integral part of each of the four
items, and makes the sentence complete. Reading the policy as a
whole, then, the exception would trigger coverage for any sudden
and accidental direct physical loss caused by an explosion
resulting from a loss to the property consisting of or caused by
water on or below the surface of the ground of the residence
premises, regardless of its source. As already noted, this does
not describe what happened here according to plaintiffs' own
expert.
Further, it is unimportant that Allstate did not label
the exception an "ensuing loss provision," or use "ensuing from"
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instead of "resulting from" in the policy as "[t]hese clauses are
common in all-risk policies, and while rarely identical they
share more similarities than differences" (Fiess v State Farm
Lloyds, 202 SW3d 744, 752 [Tex 2006] [noting that a majority of
jurisdictions, including New York, refuse to interpret an ensuing
loss provision to make an excluded loss reappear as a covered
loss] [id. at 752-753]). Indeed, the phrases "ensuing loss" or
"resulting loss" have been used interchangeably to mean a loss
that follows chronologically or occurs after an excluded event
(see Narob Dev. Corp., 219 AD2d at 454; TMW Enterprises, Inc. v
Federal Ins. Co., 619 F3d 574, 579 [6th Cir 2010]; see also Paul
T. Sullivan, Jeffrey A. Gordon, "A Review of Ensuing Loss Case
Law: 2010 to Present," 43 The Brief, Spring 2014).
Finally, plaintiffs take the position that even if
"resulting from" does mean "follows," it is not "irrational" for
it also to mean "caused by." The sudden and accidental exception
to the water loss exclusion, however, uses the phrase "caused by"
earlier when referring to "loss caused by . . . explosion"
(emphasis added). The exception then uses a different phrase –-
i.e., "resulting from items 1 through 4" (emphasis added). The
use of different terms in the same agreement (here, in the same
sentence) implies that they are to be afforded different meanings
(see Frank B. Hall & Co. of N.Y. v Orient Overseas Assoc., 48
NY2d 958, 959 [1979]; NFL Enters. LLC v Comcast Cable
Communications, LLC, 51 AD3d 52, 60-61 [1st Dept 2008]).
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In sum, 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. As stated by the Supreme Court of New Hampshire when
interpreting a policy excluding water loss, "[t]o apply the
ensuing loss provision to provide coverage for what is
essentially a flood would subvert the intent of the parties"
(Bates v Phenix Mut. Fire Ins. Co,, 156 NH 719, 723, 943 A2d 750,
754 [2008] [internal quotation marks omitted]). In the same way,
permitting coverage under the facts of this case would force
Allstate to insure a loss it did not contemplate and, indeed,
affirmatively excluded.
Accordingly, the judgment appealed from and the order
of the Appellate Division brought up for review should be
reversed, with costs; plaintiffs' motion for summary judgment
denied; and Allstate's cross motion for summary judgment granted.
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Platek v Allstate Indemnity, et al.
No. 21
PIGOTT, J. (concurring):
I agree with my colleagues that the exception to the
water loss exclusion in the Allstate policy does not provide
coverage for plaintiffs' loss. I disagree, however, that the
loss "clearly falls within item 4 of the water loss exclusion"
(majority opn. at 7).
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The homeowner's insurance policy at issue is an "all
risk" policy, which covers "sudden and accidental direct and
physical loss to the property" unless specifically excluded (see
Parks Real Estate Purchasing Group v St. Paul Fire and Marine
Ins. Co., 472 F.3d 33, 41 [2d Cir 2006]). There is little doubt
that the policy at issue would, in the normal course, cover
direct and physical loss from an "explosion".
On plaintiffs' motion for summary judgment, the only
testimony with respect to what occurred in this case was
plaintiffs' expert opining that plaintiffs suffered direct water
loss from an "explosion" of a water pipe (see generally Goldner v
Otsego Mut. Fire Ins. Co., 39 AD2d 440, 442 [1972]). Allstate
proffered no evidence to dispute this evidence.
Because plaintiffs' argument to the court was
predicated on the exception to the water loss exclusion of the
policy, however, the courts did not address this primary coverage
issue. I therefore concur with the result in this case.
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Judgment appealed from and order of the Appellate Division
brought up for review reversed, with costs, plaintiffs' motion
for summary judgment denied and defendant Allstate Indemnity
Company's motion for summary judgment granted. Opinion by Judge
Read. Chief Judge Lippman and Judges Rivera and Abdus-Salaam
concur. Judge Pigott concurs in result in a separate opinion.
Judges Stein and Fahey took no part.
Decided February 19, 2015
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