Opinion
08-30417.
Decided March 24, 2009.
ERIC T. SWARTZ, ESQ., For the Plaintiff, Watertown, NY.
STEPHEN A. DAVOLI, ESQ. Sugarman Law Firm, For the Defendant, Syracuse, NY.
The plaintiff testified a contractor had done $200,000 worth of improvements to an older house addition to house, new kitchen and bedroom and hardwood floors throughout the house.
In September 2007 he said he left the house for 6-7 weeks returning in late October 2007. He said that when he first returned, he did not see that the floor in the dining room had buckled until he noticed it about a week later. He agreed after making this observation in early November 2007, his contractor was unable to come to look at the situation for another two weeks or mid-November 2007.
He said that when his contractor came he advised the plaintiff after examining the sub-floor area there was a major pipe leak with water going all over the place and to contact a plumber. The plumber fixed the problem he described to the plaintiff as water spraying all over the place covering in the sub-floor over a six to seven foot radius where the water had been spraying. He said the plumber fixed the pipe and marked it so the insurance adjuster could see what had been repaired and the location of the repair.
The plaintiff said that he only called the Allstate Insurance agent's local office after the plumber had completed the work. He said that he did not know if the pipe involved was part of the improvement work, but he did know if it was hooked up to it.
The plaintiff said that the plumber told him he had water damage due to the repaired leak and the floor contractor told him the damage to the new hardwood floor was due to water damage at the area of the water leak. He agreed that from the time he left in September until he returned, noticed the floor problem in late October, that was not checked by his contractor until two weeks after that leading to a plumber coming to fix the pipe leaking water, the water may have been escaping since he initially returned or before that time until "early December 2007" over a "period of a number of weeks."
He said that he was aware of the insurance contract as he had used Allstate for a number of years, but he had not "read the details of it." He said that Mike Goodwin came after the claim was denied to remove the "dining room floor and put in a whole new sub-floor and new hardwood floors."
The plaintiff called Mike Goodwin, the contractor who repaired his floor in the spring of 2008. He said he and two others removed all the damaged wood and replaced it with new wood over a two-day period. He said that the cost to do this job was $3,000, including labor and materials. He said he did prepare a bill, but decided under the circumstances he would not charge the plaintiff for what he had done.
The defense called Robert Giacobbi. He testified that he was a claims adjuster for Allstate Insurance Company and had over 12 years' experience initially in auto and then over the last 6 years property claims such as the one at issue in this case based upon his personal experience in construction, averaging about three inspections per day.
He said that according to the company records the incident was first reported 12/21/07 to the local agent who in turn reported it to the claims office. A claims handler then called and obtained information about the situation which was reduced to a report. He was given this document and asked to make an inspection of the damage. He said his job was to determine if it was a covered loss under the terms of the insurance policy and, if it was insurable, then to measure the area to be repaired as well as estimate the cost.
He said that when he saw the area "it jumped out . . . buckled up about the thickness of the floor planks . . . about 4 inches . . . standing straight up right down the middle of the [affected area] of the floor" noting one could "trip over it . . . in the middle room of the house."
He said that he attempted to enter the crawl space under the house to inspect the pipe under the damaged flooring to inspect the repair done weeks before by the plumber, but he was unable to reach an area where the pipe repair was visible that was at the point where the pipe crossed the foundation of the old structure into the new addition.
He said he talked to Mr. Orton who had been retained by the plaintiff to fix the pipe in November 2007. He was told that Orton found a "split on the very top of the pipe . . . spraying mist onto the sub-floor above this split covering ten foot diameter" of the structure immediately above it. He said Orton only did a temporary repair so marked for the insurance adjuster's inspection.
He said that based upon his training and experience the water spraying out of this split in the pipe had saturated the sub-floor, the insulation, and finally reached the floor, that after absorbing all the moisture that reached it the floor began to expand outward towards the walls and then buckle and warp. He said this was the sole cause of the conditions the plaintiff discovered in early November 2007 when he initially called his contractor conditions that worsened until the plumber finally stemmed the leak weeks after leaving the condition in which he found the floor in January 2008 when he inspected the damage.
He said that while this "misting" may or may not have occurred from the time the plaintiff left the house in September 2007 for 9 weeks, it had lasted for a sufficient length of time in sufficient intensity to soak through the sub-floor, insulation, and finally the floor leading to the damage observed by the plaintiff in late October or early November 2007 and up to the date the plumber fixed the leak.
He said that while all the damage was directly related to this pipe leaking water, it was not an insurable event. He said that had the pipe suddenly burst, any damage would have been covered for any losses to property related to that event being a "sudden loss." He said that as explained in the January 18, 2008 claim denial letter that under paragraphs 18(a) and (b) damage from water due to "seepage . . . (a) from plumbing . . . "within the dwelling was specifically excluded and (b) from . . . around any plumbing fixtures, including, but not limited to . . . or other fixtures designed for the use of water . . ."
He said this pipe leak causing the "misting" leading to a steady saturation of the structures above it, including over time the affected floor, met the definition of "seepage" excluded by paragraph 18 of the contract, i.e., " . . . continuous . . . leakage over a period of weeks . . . of water . . . (a) from plumbing . . .
The plaintiff argues that when interpreting the exclusions clauses of the insurance contract "the tests to be applied in construing an insurance policy are common speech and the reasonable expectation and purpose of the ordinary businessman . . . ambiguities . . . to be construed against the insurer, particularly when found in an exclusionary clause . . . ( Incorporated Village of Cedarhurst v. Hanover Insurance Co., 160 Misc 2d 795, 797) and that "Policy exclusions, in particular, are given strict and narrow construction with any ambiguity resolved against the insurer" ( Todd Wilder v. Heritage Maintenance, Inc., 14 Misc 3d 963, 972).
The plaintiff further argues citing Lori J. Hudson v. Allstate Insurance Co., 25 AD2d 654, that a similar situation in that case, where the water damage excluded occurred on or below the surface of the ground, the Court rejected the exclusion saying "we find that the exclusions do not negate coverage for damage by accidental escape of water from pluming system . . . (id. p. 656).
The plaintiff cites Kenford Co., Inc. v. County of Erie (4th Dept), 108 AD2d 132, to support the evidence of the damages being $3,000 even though the contractor who did the repair elected to not send a bill.
The defense argues that as the policy does not cover damage due to "seepage" of water, but rather, only water damage resulting from a "burst" citing dictionary definitions of each, the damage being here caused from a split in a pipe causing water to be emitted in or spray onto the floor structures above it, the incident was excluded by the plain language of the contract.
The defense also argues that the plaintiff failed to present evidence of damages, also citing the Kenford Co., Inc. (supra) case. The rationale for the defense argument is that notwithstanding whether or not the claim is not excluded, the fact the plaintiff's repairs were done by a contractor who elected not to send him a bill for the work the plaintiff was made "whole" so there was no basis to award damages under the insurance contract.
The defense further cited B.-Economy Mkt., Inc. v. Harleysville Ins. Co. of NY , 10 NY3d 187 , Freund v. Washington Square Press, Inc., 34 NY2d 379, as well as Lexington 360 Assocs. v. First Union Nat. Bk. of N.C., 234 AD2d 187, and Burke, Kuipers Mahoney v. Dallas Dispatch Co., 253 AD206, to support the argument where there is no evidence of loss to be compensated by the policy because the plaintiff due to another person making the repairs for him at not cost to him, there is no basis to award any damages under the contract and the matter should be dismissed for that reason alone.
Law
Insurance Policy Interpretation
In Pattern Jury Instructions, 2d Edition, Vol. 2, 2009, at PJI 4:45 dealing with Insurance Contracts, the Introductory Statement is broken into various sections with paragraph headings providing commentary on various aspects of New York State Insurance Law jurisprudence. A review of these areas covered in this section provides a framework upon which to base the decisions in this case.
Under the topic "Construing Insurance Policies" at pps. 875 to 883 it is stated that as insurance policies are contracts, the "principals of contract interpretation" apply (p. 875) and the language of the policy should be construed in a way that affords a fair meaning to all the language employed by the parties in the contract and leaves no provision without force and effect" (id).
It is a "matter of law" for the Court to interpret whether the "terms of the policy are clear and unambiguous" and in making such a review "Courts should not strain to find an ambiguity where none exists . . . " (Id). However, [w]here an insurance policy may be reasonable interpreted in two conflicting manners, its terms are ambiguous usually becoming a "question of law for the Court . . . that should be construed in favor of the insured and against the insurer" [p. 877]. So, for the "insurer to prevail [in such case] . . . , it must demonstrate not only that its interpretation is reasonable but that it is the only fair interpretation" (id); see Hudson v. Allstate Ins. Co. , 25 AD3d 654 (conflict between policy provisions construed in favor of insured [over] damage caused by bursting of water supply pipe)" p. 878.
In reviewing whether an ambiguity . . . must be construed against the insurer who drafted the policy . . . , the test to determine whether an insurance contract is ambiguous focuses on the reasonable expectations of the average insured upon reading the policy" (p. 879); see Moston v. State Farm Insurance Companies, 88 NY2d 321 (id).
This rule "requiring that ambiguities be resolved in favor of a policyholder . . . against the company is enforced even more strictly when the language at issue purports to limit the company's liability ( Belt Painting Corp. v. TIG Ins. Co., 100 NY2d 377)" (p. 880). See, also, Vigilant Ins. Co. v. V.I. Technologies, Inc., 253 AD2d 401 (p. 880).
In the interpretation of the phrase "sudden and accidental" the discussion reviews how that language applies in exclusions in policies concerning coverage of "pollution exclusions clauses, the comment observes the "phrase sudden and accidental' may cover an oil leak that was not immediately discovered and that continued for a period of time" ( State v. Aetna Cas. and Surety Co., 155 AD2d 740) (p. 882).
In the section entitled Exclusions, the statement is clear: "[T]he rule that ambiguities in insurance policies are to be construed in favor of the insured is particularly true of exclusion clauses, which are not to be extended by interpretation or implication but are to be accorded a strict and narrow construction [citing Belt Painting Corp., supra ]" (p. 886).
In order "[T]o negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case ( RJC Realty Holding Corp. v. Republic Franklin Insurance Co., 2 NY3d 158)" and "[I]t is the act giving rise to liability that is determinative, not the theories of liability alleged" (p. 887). The "insurance carrier has the burden to establish that the exclusion applies," but, "[A] court should not impose a deity on an insurer through a strained implausible reading of the complaint that, which linguistically conceivable, is unreasonable" (p. 888).
In Allstate Ins. Co. v. Klock Oil Co. (4th Dept), 73 AD2d 486, the issue was whether an exclusion would not apply in the insurance contract if a pollution "discharge, dispersal, release or escape is sudden an accidental" (id. p. 487). In resolving the dispute the Court opined:
The pollution exclusion is statutorily mandated (Insurance Law Section 46, subds 13, 14) and reflects a public policy in New York to encourage a cleaner environment by eliminating the opportunity for industry to spread the risk of loss it causes by pollution. Public policy does not forbid enforcement of the insurance contract, however ( Messersmith v American Fid. Co., 232 NY 161, 166), and Allstate has the burden to prove its entitlement to the exclusion ( International Paper Co. v Continental Cas. Co., 35 NY2d 322, 327). Where the terms of an insurance policy are ambiguous or are subject to more than one reasonable construction, the policy must be construed most favorably to the insured and strictly against the insurer ( Farm Family Mut. Ins. Co. v. Bagley, 64 AD2d 1014). This is particularly so as to ambiguities found in an exclusionary clause ( Thomas J. Lipton, Inc. v. Liberty Mut. Ins. Co., 34 NY2d 356, 361).
The complaint framed in negligence alleges that gasoline "escaped". The question remains then whether "escape" can be found to be "sudden and accidental" so as to avoid the exclusion and fall within the contemplated risk. In construing whether or not a certain result is accidental, it is customary to review the casualty from the perspective of the insured and, applying the ordinary and proper meaning of the term, determine whether it was "unexpected, unusual and unforeseen" ( Miller v Continental Ins. Co., 40 NY2d 675, 677). The term is to be given its ordinary and popular meaning in the business liability insurance area ( Johnson Corp. v Indemnity Ins. Co. of North Amer., 7 NY2d 222, 227). If there was no intent to cause harm then any injury resulting from ordinary negligence is considered to be accidental. The "accident" is simply the undesigned event and the natural and ordinary consequences of a negligent act are not precluded ( Sturges Mfg. Co. v Utica Mut. Ins. Co., 37 NY2d 69; Corbetta Constr. Co. v Michigan Mut. Liab. Co., 20 AD2d 375). Thus, the negligent installation or maintenance of the storage tank could result in an accidental discharge or escape of gasoline which would be both "sudden and accidental" though undetected for a substantial period of time (see Employees Ins. Co. of Ala. v Rives, 264 Ala 310). Also the word "sudden" as used in liability insurance need not be limited to an instantaneous happening ( McGroarty v Great Amer. Ins. Co., 43 AD2d 368, affd 36 NY2d 358). The term "sudden an accidental" must be construed in its relevant context. The relevant context to be considered is the fact that it is a term employed by an insurer in the contract and should be given the construction most favorable to the insured. Thus, regardless of the initial intent or lack thereof as it relates to causation, or the period of time involved, if the resulting damage could be viewed as unintended by the fact finder, the total situation could be found to constitute an accident ( McGroarty v Great Amer. Ins. Co., 36 NY2d 358, 364) and therefore within the coverage afforded by Allstate in the comprehensive general liability insurance policy issued to Klock.
It is noteworthy that this policy expressly insures against risk of property damage from gasoline pumps and tanks and "[we] cannot think that, given the economic and factual setting in which these policies were written, an ordinary businessman in applying for insurance and reading the language of these policies when submitted, would not have thought himself covered against precisely the damage claims now asserted" ( Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356, 361, supra). Accordingly, Allstate may not avoid its duty to defend as well as to indemnify ( Calkins v Merchants Mut. Ins. Co., 59 AD2d 1052). Id. pps. 485-489.
In Colonie Motors v Hartford Acc. Indem. Co., 145 AD2d 180, the Court citing Allstate Ins. Co. v Klock Oil Co. Stated that the issue below was whether " . . . a question of fact existed as to whether the discharge was . . . sudden in the sense of quick, fast, abrupt, hasty and rapid'" (id. p. 181) as that term applies to the insurance policy wording "if the discharge is sudden an accidental" (id).
"[I]n Allstate Ins. Co. v Klock Oil Co. ( supra), the Fourth Department did construe the phrase, stating that "the word sudden' as used in liability insurance need not be limited to an instantaneous happening" ( supra, at 488), and held that the negligent installation or maintenance of a gasoline storage tank could result in an accidental discharge or escape of gasoline which would be both "sudden and accidental", though undetected for a substantial period of time (supra)" (id. pps. 181-182).
The Court then went on to state:
"[W]hile we agree that the word "sudden" should be accorded some meaning other than that already encompassed by the word "accidental", we are of the view that the phrase "sudden an accidental" should be construed in its entirety, without undue reliance upon discrete definitions of the two operative words that make up the phrase. We are also of the view that in light of the many and varied potential fact patterns to which the exclusion might apply, the phrase "sudden and accidental" should not be construed in the abstract; rather, it should be construed in the context of the facts of each particular case.
Turning to the case at bar, we hold that the pollution exclusion is inapplicable to the undisputed facts herein. In contrast to the insured in the Technician case ( supra), plaintiff herein did not intentionally discharge pollutants for several years which caused unintended and unexpected damage. Rather, plaintiff installed a containment unit for the purpose of preventing any damaging discharge of waste oil into the environment. One of the underground pipes in the unit cracked, resulting in the discharge of waste oil. There is nothing in the record to suggest that plaintiff was aware of either the crack or the discharge until waste oil was discovered in the ground water of adjacent property. Nor is there anything in the record to suggest that routine maintenance and/or inspection procedures would have revealed the defect in the containment system. In these circumstances, there can be little doubt that the initial discharge of waste oil was "sudden and accidental"; had the crack been located such that it was readily discoverable, so that the discharge was limited to a "short period of time", the pollution exclusion clearly would not have been applicable and there would have been coverage for the property damage caused by the discharge. The fact that the discharge was not readily discoverable and, thus, continued for a period of time, through no fault of the insured, should not move an otherwise covered occurrence within the rather shadowy perimeter of the exclusion. The tests to be applied in construing an insurance policy are common speech and the reasonable expectation and purpose of the ordinary business person ( Ace Wire Cable Co. v Aetna Cas. Sur. Co., 60 NY2d 390, 398), and whenever an insurer wishes to exclude certain coverage from its policy obligations it must do so in clear and unmistakable language ( Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 311). Based upon these general principles, we conclude that the discharge at issue herein was "sudden and accidental" and, therefore, not within the pollution exclusion (pps. 182-183)."
In reaching the decision in Colonie Court specifically noted Technicon Elecr. Corp. v American Home Assur. Co. ( 141 AD2d 124, 130) that " . . . called into question the reasoning of the Allstate case" (id. p. 182). The Technicon case was heard by the Court of Appeals ( 74 NY2d 66) where that court observed:
"[A] word is necessary about Allstate Ins. Co. v Klock Oil Co. ( 73 AD2d 486) because it is strongly relied on by Technicon. The case is clearly inapposite. The complaint in Klock alleged unintentional accidental discharge. The court held that as long as the escape of gasoline was alleged to be accident, it could be sudden even though the discharge was undetected for a substantial period of time ( id. at 488). The court then added, "if the resulting damage could be viewed as unintended by the fact finder, the total situation could be found to constitute an accident * * * and therefore within the coverage afforded by Allstate" ( 73 AD2d at 489). Technicon's reliance on Klock and the quoted dictum are unavailing because the court was not there addressing the discharge of pollutants the critical policy language here but rather the resulting damage argumentation construct. McGroarty v Great Am. Ins. Co. ( 36 NY2d 358), used by Klock in that connection, is a case which did not even concern the pollution exclusion clause but rather turned on the term "accident" in the context of a policy covering property damage "caused by an accident". The policy in McGroarty made the fulcrum of coverage rest on the injurious results, not the precipitating discharge acts themselves. In sharp contrast, the pollution exclusion clause at issue here is directed at the polluting act itself the discharge, dispersal or escape. (Id. pps. 75-76)."
In response to the Technicon decision the Appellate Division Third Department in State of New York v Aetna Casualty and Surety Co. (3rd Dept.), 155 AD2d 740, ruled:
"[P]laintiff argues that Supreme Court erred when it determined that the discharge of gasoline could not be "sudden" within the meaning of the pollution exclusion clause because the leakage had apparently continued for a number of years. In defending Supreme Court's determination, defendant points to the decisions of other courts which have concluded that a "sudden" discharge can only occur if it is "unexpected, unintended and occurs over a short period of time" ( Powers Chemco v Federal Ins. Co., 144 AD2d 445, 447, lv granted 74 NY2d 602, quoting Technicon Elecs. Corp. v American Home Assur. Co., 141 AD2d 124, 137, affd on other grounds 74 NY2d 66).
In a prior case most similar to the instant case, this court held that the phrase "sudden and accidental" in these policies "should be construed in its entirety, without undue reliance upon discrete definitions of the two operative words that make up the phrase" ( Colonie Motors v Hartford Acc. Indem. Co., 145 AD2d 180, 182), and the phrase should always be "construed in the context of the facts of each particular case" ( id.; see, County of Broome v Aetna Cas. Sur. Co., 146 AD2d 337, 341-342, lv denied NY2d [Oct. 26, 1989]). Of significance to the issue at hand, this court has also stated that the fact that a discharge is not immediately discoverable and continues for a period of time "should not move an otherwise covered occurrence within the rather shadowy perimeter of the exclusion" ( Colonie Motors v Hartford Acc. Indemn. Co., supra, at 183). It should be noted that defendant and amicus curiae Insurance Environmental Litigation Association vigorously argue that the Court of Appeals' recent decision in Technicon Elecs. Corp. v American Home Assur. Co. ( 74 NY2d 66) actually overrules this court's decision in Colonie Motors v Hartford Acc. Indem. Co. (supra) because the court stated that the phrase "sudden and accidental" is unambiguous, which arguably contradicts the fact-based test enunciated by this court in Colonie Motors. It is our view, however, that the two cases are not incompatible. Notably, the Court of Appeals did not define the word "sudden" other than stating that it must be distinct from "accidental" and, in the absence of clearer direction from the Court of Appeals, we decline to abandon our reasoning in Colonie Motors.
There is no evidence in the record to suggest that either the Leonards or Augsbury were aware that gasoline was leaking from the gasoline tank until the second of two investigations by the Department of Transportation in August and September 1980 revealed contamination in the area from the gasoline. Accordingly, since defendant has not proven that the occurrence fits squarely within the exclusion, we hold that there must be a reversal and the matter remitted to Supreme Court for a new trial. (Id. pps. 741-742)."
In Northville Industries Corp. v Nat'l Union Fire Ins. Co. of Pittsburgh (2d Dept.), 218 AD2d 19, in addressing a pollution exclusion clause in an insurance contract involving gasoline in groundwater and whether it was "sudden and accidental" explained its opposition to the Allstate and Colonie cases and agreement with the Technicon case:
"[N]otwithstanding the foregoing authority, Northville urges that any inquiry into the suddenness of a particular discharge should focus upon an "expectation" element, so as to render "sudden" any release of pollutants which is "unexpected". The contention is not without some support in New York case law. For example, in Allstate Ins. Co. v Klock Oil Co. ( 73 AD2d 486), the Appellate Division, Fourth Department, observed in dicta that an alleged gasoline leak from an underground tank at an automobile dealership could have been both "sudden and accidental" because it was unexpected and unintended, even though it went undetected for a substantial period of time. Similarly, in Colonie Motors v Hartford Acc. Indem. Co. ( 145 AD2d 180), the Appellate Division, Third Department, reasoned that waste oil emanating from a crack in an underground pipe was "sudden and accidental" where it was unexpected, unintended, and was not readily discoverable. In State of New York v Aetna Cas. Sur. Co. ( 155 AD2d 740), the Appellate Division, Third Department, concluded that a leak from an underground gasoline tank which occurred over many years could nevertheless be "sudden and accidental" because it remained undetected and because neither the owner of the storage tank nor the owners of the property in which the tank was situated had been aware of the leak. Likewise, in Petr-All Petroleum Corp. v Fireman's Ins. Co. ( 188 AD2d 139), the Appellate Division, Fourth Department, found that a gasoline leak could be "sudden and accidental" where the underlying complaint could be interpreted to allege an accidental and unexpected leak from a subsurface pipe or tank which continued undetected for a period of time.
We find the rationale of the foregoing decisions unpersuasive. Significantly, the Appellate Division, Third Department, clarified its position on the issue of suddenness following the Court of Appeals decisions in Technicon Elecs. Corp. v American Home Assur. Co. ( 74 NY2d 66, supra) and Powers Chemco v Federal Ins. Co. ( 144 AD2d 445, affd 74 NY2d 910, supra), as follows: "While the Court of Appeals has never expressly addressed the meaning of sudden', its analysis in both Technicon Elecs. Corp. ( supra) and Powers Chemco ( supra) leads us to the inescapable conclusion that the inquiry focuses upon the temporal nature of the activity. By acknowledging that sudden' and accidental' are independent requirements, the court necessarily rejected the argument . . . that sudden' simply means unexpected' and is therefore synonymous with accidental. Only by allowing sudden' to retain its temporal aspect does the term attain independent significance. Thus, for a release or discharge to be sudden' within the meaning of the pollution exclusion, it must occur abruptly or quickly or over a short period of time'" ( Borg-Warner Corp. v Insurance Co., 174 AD2d 24, 31, supra). Given the shift by the Appellate Division, Third Department, in its construction of the term "sudden" from a focus on an expectation element to a temporal aspect, the precedential value of that Court's decisions in Colonie Motors v Hartford Acc. Indem. Co. ( 145 AD2d 180, supra) and State of New York v Aetna Cas. Sur. Co. ( 155 AD2d 740, supra) is highly questionable ( see, American Ins. Co. v Fairchild Indus., 852 F Supp 1173, 1182, supra).
Moreover, while the Appellate Division, Fourth Department, adheres to an expectation analysis in evaluating whether a given release of pollutants is "sudden", we find that such an analysis ignores any meaningful distinction between the independent requirements of "sudden" and "accidental", and instead suggests that both elements are satisfied where the discharge is merely "unexpected", regardless of the length of time over which it occurs. In our view, such an approach contradicts the plain meaning of the term "sudden" and reduces it to a superfluous requirement in contravention of the settled principle that every term in an insurance agreement is deemed to have some meaning and should not be assumed to have been idly inserted ( see, Technicon Elecs. Corp. v American Home Assur. Co., 141 AD2d 124, 140, supra). Furthermore, to the extent that Northville relies upon the Appellate Division, Fourth Department, cases to read a discovery rule into the "sudden and accidental" exception, we note that the exceptions in the policies at issue contain no language indicating that an insured's awareness of or ability to reasonably detect the discharge of pollutants has any impact upon whether that discharge is "sudden". We refuse to vary the unambiguous terms of the subject clauses in this case by reading such a provision into them ( see, Technicon Elecs. Corp. v American Home Assur. Co., supra, at 140, affd 74 NY2d 66, 76, supra). Hence, we do not consider the decisions in Allstate Ins. Co. v Klock Oil Co. ( 73 AD2d 486, supra) and Petr-All Petroleum Corp. v Fireman's Ins. Co. ( 188 AD2d 139, supra) to constitute persuasive authority on the issue of suddenness.
We similarly reject Northville's contention that a release of pollutants need only be sudden in its "inception" but not in its "duration" in order to qualify for the exception. The fallacy of the argument is readily apparent, since every dispersal of pollution begins with the abrupt entry of molecules of the offending substance into the surrounding environment. Hence, were we to accept Northville's strained construction of the exception, the suddenness requirement would be rendered meaningless because all discharges of pollutants are necessarily sudden at the time of their inception. Moreover, Northville's claim that a discharge may be considered "sudden" as long as its cause was unexpected finds no genuine support in decisional law or in the terms of the "sudden and accidental" exception itself. Indeed, the suddenness component, whether analyzed according to the temporal aspect or the "expectation" element, pertains to the discharge or release of pollutants itself, not to the cause of that discharge ( see, Technicon Elecs. Corp. v American Home Assur. Co., 74 NY2d 66, 76, supra ["the pollution exclusion clause is directed at the polluting act itself the discharge, dispersal or escape"]). For the same reason, Northville's contention that New York draws a distinction with regard to suddenness between situations in which entitles cause pollution by their disposal of waste materials in the normal course of business and those in which the pollution results from undetected underground discharges is unavailing. While such a distinction may figure prominently in an analysis of whether a particular discharge is "accidental", it does not shed light on the discrete question of whether it is "sudden", nor does the language of the insurance policies in issue draw such a distinction.
Accordingly, we decline to depart from our reliance on the temporal aspect of the term "sudden" in reviewing cases such as the matter at bar. Indeed, our focus on the temporal aspect most closely comports with the ordinary meaning of the term and is consistent with our prior decisions and with the persuasive judicial authority on this subject (id. pps. 19-31)."
Decision
A: Policy Coverage for Water Leaks
In Pattern Jury Instructions (supra) it states:
Where an insurance policy may be reasonably interpreted in two conflicting manners, its terms are ambiguous. Mostow v State Farm Ins. Cos., 88 NY2d 321, 645 NYS2d 421, 668 NE2d 392; Breed v Insurance Co. of North America, 46 NY2d 351, 413 NYS2d 352, 385 NE2d 1280; Thomas J. Lipton, Inc. v Liberty Mutual Insurance Co., 34 NY2d 356, 357 NYS2d 705, 314 NE2d 37. Where an insurance policy is found to be ambiguous, the parties may submit extrinsic evidence to aid in construction, State v Home Indemnity Co., 66 NY2d 669, 495 NYS2d 969, 486 NE2d 827; Fairchild v Genesee Patrons Co-op Ins. Co., 238 AD2d 841, 656 NYS2d 544. However, where such evidence does not resolve the "equivocality" of the language of the contract, the issue remains a question of law for the court; State v Home Indemnity Co., supra ; New York v Evanston Ins. Co., 39 AD3d 153, 830 NYS2d 299. Under those circumstances, the ambiguity should be construed in favor of the insured and against the insurer, Mostow v State Farm Insurance Co., supra ; State v Home Indemnity Co., supra ; State Farm Mutual Automobile Insurance Co. v Glinbizzi, 9 AD3d 756, 780 NYS2d 434; Fairchild v Genesee Patrons Co-op Ins., supra . In order for the insurer to prevail, it must demonstrate not only that its interpretation is reasonable but that it is the only fair interpretation, Sincoff v Liberty Mut. Fire Ins. Co., 11 NY2d 386, 230 NYS2d 13, 183 NE2d 899; New York v Evanston Ins. Co., supra . Id. p. 877.
The insurance company denied coverage in this case under exclusion number 18:
18.Seepage, meaning continuous or repeated seepage or leakage over a period of weeks, months, or years, of water, steam or fuel;
a)from a plumbing, heating, air conditioning or automatic fire protection system or from within a domestic appliance; or
b)from, within or around any plumbing fixtures, including, but not limited to, shower stalls, shower baths, tub installations, sinks or other fixtures designed for the use of water or steam.
The basis for this determination rests upon the investigation of their claims adjuster, Mr. Giacobbi's, conclusions the damage to the insured's floor was due to water escaping from plumbing under it that had escaped from a split on the top of a pipe from which the spray of water (mist) over a period of several weeks (or months) had soaked the sub-floor structure under the main floor as well as, eventually, that floor itself, causing the buckling and warping first observed by the insured in early November 2007 and himself in January 2008.
He said he obtained the information about the pipe defect from the plumber the insured hired to fix the pipe in November 2007 after he learned from a contractor hired to address the slight warping of the floor observed by the insured in late October or early November 2007.
He said the plumber told him the split found in the top of the pipe allowed a spraying mist of water covering about a ten foot diameter of the sub-floor above it. He said that as time passed the moisture from the water spray soaked through the sub-floor and insulation, eventually reaching the base of the main floor that reacted by expanding and then warping as well as buckling as the result of absorbing too much moisture. He said the plumber had made a temporary repair using straps and clamps so when the inspection was made by the claims adjuster, the area would be marked where the pipe had leaked.
The insured also related to the local insurance agent, to the claims handler on the phone and on the record in this trial what the plumber had told him which generally agrees with what Mr. Giacobbi was told by the plumber.
Both the insured and Mr. Giacobbi stated neither was able to gain access in the crawl space to the location where the pipe leaked and neither had any information about the defect on it from personal observation relying solely on what the plumber had told each what he had observed about the condition of the pipe and the effect of water escaping from it and on the sub-floor above it. There is no evidence offered by Mr. Giacobbi of what the cause of the split in the pipe was because he never asked the plumber nor did he examine it himself.
In Lori J. Hudson v Allstate Insurance Company (2006), 25 AD3 654, the water supply burst causing erosion of the supporting structures under the house leading to a damage claim. The exclusions in the policy issued by Allstate in that case are identical with the ones listed in the policy in this case.
The carrier denied coverage under exclusions 4, 5, and/or 12 because the action of the escaped water was the result of a pipe "below the ground." The Court rejected this as not factually correct and, in addition, observed:
Furthermore, a conflict between several of the policy provisions creates a latent ambiguity that must be resolved in favor of the plaintiff. Exclusion number 15 provides that, "we do not cover loss consisting of or caused by any of the following; (15)(a) wear and tear, aging, marring, scratching, deterioration, inherent vice, or latent defect, (b) mechanical breakdown . . . (d) result or other corrosion," but also provides that, "[i]f any of (a) through (h) cause the sudden and accidental escape of water . . . from a plumbing . . . system . . . we will cover the direct physical damage caused by the water."
Because the pipe that burst supplied water to the plaintiff's home, it was part of her plumbing system ( see Cantanucci v Reliance Ins. Co., 43 AD2d 622, 622-623, affd 35 NY2d 890; see also Weissman v Employers Ins. of Wausau, 60 AD2d 855; Bienenstock v Federal Ins. Co., 75 Misc 2d 745). Therefore, an ambiguity was created by the conflict between the provision of coverage for accidental escape of water from a plumbing system and the exclusions invoked by the defendant.
In order to give effect "to the well-settled principle that provisions of an insurance policy are to be harmonized and that ambiguities must be resolved in favor of the insured" ( Cantanucci v Reliance Ins. Co., supra at 623; seel also Miller v Continental Ins. Co., 40 NY2d 675, 678, we find that the exclusions do not negate the coverage for damage caused by the accidental escape of water from a plumbing system.
Accordingly, the defendant failed to establish, prima facie, that the policy did not cover the loss claimed, and therefore was not entitled to summary judgment dismissing the complaint ( see De Marinis v Tower Ins. Co. of NY , 6 AD3d 484, 487). However, the plaintiff established a prima facie case that the policy did cover the loss claimed, and in response the defendant failed to raise a triable issue of fact ( see Novick v United Servs. Auto. Assn., 225 AD2d 676, 677). Cozier, J.P., Ritter, Rivera and Fisher, JJ., concur. Id. pps. 655-656.
In this policy the exclusions listed at "15 a) wear and tear, aging, marring, scratching, inherent vice or latent defect; b) mechanical breakdown; or d) rust or corrosion" for losses caused by the same are not excluded "if any of (a) through (h) cause the sudden and accidental escape of water from a plumbing . . . system . . . within your dwelling, we cover the direct physical loss damage caused by the water [including] the cost of tearing out and replacing any part of your dwelling necessary to repair the system."
Pattern Jury Instructions, supra, states the Court, when interpreting the insurance contract "[T]he language of the policy should be construed in a way that affords a fair meaning to all of the language . . . in the contract and leaves no provision without force and effect. Raymond Corp. v National Union Fire Insurance Company of Pittsburgh, Pa. , 5 NY3d 157 ; Consolidated Edison Co. of New York, Inc. v Allstate Insurance Company, 98 NY2d 208." (id. p. 875).
The defense has based its denial of the claim on the exclusion from coverage of water damage due to seepage as defined at paragraph 18 based upon Mr. Giacobbi's conclusion that the water spray from the split in the plumbing pipe was a "seepage" under paragraph 18 and the damage from this "spray-seepage" of water over the period of weeks and/or months was not covered due to the exclusion.
In the Hudson case the carrier specifically listed the exclusions at paragraph 15(a)(b) and (d) in denying coverage of damage related to water escaping from a plumbing system. In this case none of those exclusions were raised to deny the claim, only paragraph 18 "seepage". The Hudson Court ruled that due to the "latent ambiguity" between 15(a)(b) and (d) and the further caveat that if the damages claimed under 15(a)(b)(d) caused by the sudden and accidental escape of water . . . from a plumbing system . . . we will cover the direct physical damage caused by the water" mandated the resolution of the ambiguity in favor of the insured [finding] the exclusions do not negate the coverage for damage caused by the accidental escape of water from a plumbing system (id. pps. 655-656).
The conclusion of this Court is that this is a per se ambiguity then between what is excluded by paragraph 15(a) to (h) and the provision in that same paragraph for coverage if the cause is a leak in the plumbing system "a latent ambiguity that must be resolved in favor of the plaintiff" (id), that being the case the policy using the same language at paragraph 15 in this case creates the same ambiguity that must be resolved against the defendant.
The Court finds that under New York Contract Law the insurance policy's language "should be construed in a way that affords a fair meaning to all the language" (PJI, supra, p. 875) paragraph 15 shall be considered in determining the insured coverage clearly written the whole context of the policy language dealing with water escaping from plumbing causing damage.
The insured has based his claim on the damage caused to his floor by water that escaped from a split in a water pipe remaining under it. Mr. Giacobbi admitted that was the cause of the damage for which coverage was sought under the policy.
The carrier never raised any question about why this split occurred in the pipe leading to the leak in it. It is reasonable to observe that, as described by the plumber, such a split in the pipe could be due to any of the conditions listed at 15(a)(b) or (d) allowing the "sudden and accidental escape of water" from this split in the top of the pipe for which the policy will cover in such case.
The carrier, by arguing the paragraph 18 "seepage of water over weeks, months or years" exclusion, does not deny the reason for the water leak, but rejects coverage based on the time it took for the water leak to cause the damage. So according to the agreement of the carrier, regardless of whether the failure of the pipe causing it to leak was one of the conditions listed at 15(a)(b) or (d), if the intensity of the leak amounted to a "seepage" of water over weeks, months or years leading to "direct physical damage caused by the water" (covered under paragraph 15) the exclusion under paragraph 18 denies the coverage granted under paragraph 15. This argument also points out a "latent conflict between the policy provisions that must be resolved in favor of the plaintiff" ( Hudson, supra, p. 655).
The Court notes that Mr. Giacobbi never examined the pipe where the split occurred. He testified he was aware of why the water escaped only after he talked to the plumber who fixed the leak with a temporary patch so the adjuster could examine it. He never determined why the pipe failed at the point where the split was located. So he did not know whether the failure was due to conditions listed at paragraph 15 a), b) or d), i.e., wear and tear, aging . . . deterioration or latent defect, mechanical breakdown, rust or other corrosion, etc., conditions that could have allowed the split to happen in the pipe allowing "the sudden and accidental escape of water . . . from a plumbing system within your dwelling" the policy covered the "direct physical damage caused by the water."
Instead Mr. Giacobbi declared a lack of coverage under paragraph 18 a) and b) "seepage" exclusion without addressing why the pipe failed because he never made that investigation to determine if coverage was available under paragraph 15 a), b) or d) conditions involving a pipe failure allowing coverage for water damage as set forth therein.
The Court finds that as the insurance carrier has the burden to establish that the exclusion applies [ Holmen v Transamerica Ins. Co., 81 NY2d 1026]" (PJI, p. 888), Mr. Giacobbi's failure to investigate the cause of the pipe's failure and exclude as a cause the conditions listed at paragraph 15 a), b) and d) for it, then he could not rule out coverage due to water damage from the pipe if the break in it was brought on by causes listed under paragraph 15 a), b) or d).
Thus, "to negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation and applies in the particular case" ( RJC Realty Holding Corp., supra). As there is another reasonable interpretation to allow coverage under paragraph 15 as heretofore noted covering the water damage to the floor, claiming the exclusion of coverage under paragraph 18 without evidence that coverage would be allowed under paragraph 15 for the water damage, does not "establish the exclusion in clear and unmistakable language." This causes a clear ambiguity due to the lack of factual support to exclude coverage under 15 a), b) and d) for this water damage to be resolved in favor of the insured and against the insurer ambiguities in insurance policies are to be construed in favor of the insured [especially involving] exclusion clauses which are not to be extended by interpretation or implication [as argued by Mr. Giacobbi's use of paragraph 18 exclusion for seepage] but are to be accorded a strict and narrow construction" as this Court has applied in this case ( Belt Painting Corp., supra, p. 886).
The Court finds a further ambiguity in the policy language involving the "seepage" term and "sudden and accidental."
In Colonie Motors the Court stated that in Allstate Ins. Co. v Klock Oil Co., supra, "the Fourth Department . . . construed the phrase "sudden" as used in liability insurance need not be limited to an instantaneous happening [holding] an accidental discharge or escape of gasoline which could be both sudden and accidental,' though undetected for a substantial period of time" (id. pps. 181-182).
The Court of Appeals in Technicon Elecs (supra) specifically addressed the Allstate v Klock case "[T]he Court held that as long as the escape of gasoline was alleged to be accident, it could be sudden even though the discharge was undetected for a substantial period of time" (id. p. 75). The Court explained that in Allstate v Klock, the question " . . . turned on the word accident' in the context of a policy covering property damage caused by an accident'. The policy in McGroaty made the fulcrum of coverage rest on injurious results, not the participating discharge acts themselves" (id. p. 76).
This Court finds that there is a "latent ambiguity" between exclusion number 15 and "sudden and accidental escape of water . . . from a plumbing system . . . will cover the direct physical damage caused by the water" as was determined in Hudson also exists in this case. Contrary to Mr. Giacobbi's agreement that the "seepage" exclusion at paragraph 18 would apply for the long term existence of the pipe leak allowing spraying of water over "weeks, months or years," the Fourth Department ruling in Allstate Ins. Co. v Klock that " . . . discharge [could] be both sudden and accidental' though undetected for a substantial period of time" [as] the word sudden' as used in liability insurance need not be limited to an instantaneous happening ( McGroaty v Great American Ins. Co., 43 AD2d 368, Affd 36 NY2d 358) (id) brings the event leading to the split on the top of the water pipe to one covered under paragraph 15 as "sudden as used in a liability insurance need not be limited to an instantaneous happening." In the sense this interpretation of "sudden and accidental" at paragraph 15 contrasts with excluding the exclusion for "seepage . . . over a period of weeks [or] months . . . of water a) from a plumbing . . . system" the same ambiguity still presents itself "an ambiguity . . . created by the conflict between the provision for accidental escape of water from a plumbing system and the exclusions involved by the defendant" (id) in Hudson and this case.
Thus, as the "provisions of an insurance policy are so harmonized and that ambiguities must be resolved in favor of the insured" the Court finds " . . . that the exclusions do not negate the coverage caused by the accidental escape of water from a plumbing system . . . " ( Hudson, supra). The Court finds that the plumbing system pipe failure is covered under this policy as provided under paragraph 15 g due to the "sudden and accidental escape of water . . . from a plumbing . . . system" as provided therein.
The defense also cites exclusion paragraph No. 22.
22.Planning, Construction or Maintenance, meaning faulty, inadequate or defective;
b)design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
c)materials used in repair, construction, renovation or remodeling; or
d)maintenance; of property whether on or off the residence premises by any person or organization.
There is no evidence offered on the record by the defendant to show these exclusions apply as the location of the leak in the pipe involved based upon the testimony of the insured and/or the claims adjuster is equivocal as to whether it was part of the renovated area or the new addition. Furthermore, there is no evidence offered to show how these exclusions listed at paragraph 22 applied to the insured's claim. As this proof of the exclusion under the policy is a burden of the insurer ( Hudson v Allstate Ins. Co., supra) and none has been shown based on the evidence in the record, the exclusion defense under paragraph 22 is denied.
Law: Damages
In Girard Ins. Co. v John W. Taylor, 6 AD2d 359, the issue concerned a deed where the grantor retained rights involving property located on the premises conveyed until a given date "on which date all right to remove or demolish same shall cease and terminate'" (id. p. 360). In resolving liability after a fire destroyed this building, the Court concluded that "[T]he interest of the insured' being that of owner, the measure of her loss is, under the policies, the actual cash value of the property, not exceeding the cost of repair" (id. p. 362). See, also, Federowicz v Potomac Ins. Co. of D.C. (4th Dept), in accord.
Both parties cite Kenmore Co., Inc. and Dome Stadium v County of Erie, 67 NY2d 257, to support their position on whether any damages are due to the insured:
"Loss of future profits as damages for breach of contract have been permitted in New York under long-established and precise rules of law. First, it must be demonstrated with certainty that such damages have been caused by the breach and, second, the alleged loss must be capable of proof with reasonable certainty. In other words, the damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes ( Wakeman v Wheeler Wilson Mfg. Co., 101 NY 205). In addition, there must be a showing that the particular damages were fairly within the contemplation of the parties to the contract at the time it was made ( Witherbee v Meyer, 155 NY 446). If it is a new business seeking to recover for loss of future profits, a stricter standard is imposed for the obvious reason that there does not exist a reasonable basis of experience upon which to estimate lost profits with the requisite degree of reasonable certainty ( Cramer v Grand Rapids Show Case Co., 223 NY 63; 25 CJS, Damages, Section 42 [b])." (id. p. 261).
In addition, the defense cites the following cases in support of its argument the insured suffered loss because the contractor who made the repairs and supplied the materials for $3,100 elected to forego payment essentially out of the goodness of his heart based upon his testimony on the record.
In the first case Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of NY , 10 NY3d 187 , the issue decided by the Court was that when an insurance carrier breaches a contract resulting in a delayed payment to a business for structural loss and net profit loss, the consequence of which led to the demise of the business due to the delay, can the insured seek consequential damages from the insurance company in addition to what was eventually paid under the contract. In making its ruling that such damages were applicable, the Court opined that " . . . proof of consequential damages cannot be speculative or conjectural (see, Ashland Mgt., 82 NY2d 403 [damages . . . must be proven with reasonable certainty and be capable of measurement based upon known reliable factors without undue speculation']. See, also, Kenmore Co. v County of Erie, 67 NY2d 257, 261 . . . " (id. p. 193).
In Freund v Washington Square Press, Inc., 34 NY2d 379, the Court reversed a lower Court decision noting "[T]he error by the courts below was in measuring damages not by the value to plaintiff of the promised performance but by the cost of the performance to defendant. Damages are not measured, however, by what the defaulting party saved by the breach, but by the natural and probable consequences of the breach to the plaintiff" (id. p. 384).
In Lexington 360 Assocs. v First Untion Nat'l Bk of N.C., 234 AD2d 187, the Court observed that "[I]n absence of any allegations of fact showing damage, mere allegations of breach of contract are not sufficient to sustain a complaint . . . [such as] where a party has failed to come forward with evidence sufficient to demonstrate damages flowing from the breach alleged and relies, instead, on wholly speculative theories of damages, dismissal of the breach of contract claim is in order (see, Kerford Co. v County of Erie [supra ])" (id. pps. 189-190).
In Blumenfeld Dev. GP, Ltd. v Roux Assocs., Inc., 2004 NY Slip Op 51383U, 5 Misc 3d 1015A, the Court cited the Lexington case in ruling:
"[I]n the absence of any allegations of fact showing damage, mere allegations of breach of contract are not sufficient to sustain a complaint. Where a party has failed to come forward with evidence sufficient to demonstrate damages flowing from the breach alleged and relies instead, on wholly speculative theories of damages, dismissal of the breach of contract claim is in order. Lexington 360 Associates v First Union National Bank of North Carolina, 234 AD2d 187, 189-90, 651 NYS2d 490 [1st Dept. 1996] (citations and internal quotation marks omitted). Plaintiff BDG has failed to establish a causal relationship between defendant Roux's alleged breach of contract and the damages claimed, which is essential given that proximate cause is an element of breach of contract. Jorgensen v Century 21 Real Estate Corp., 217 AD2d 533, 534, 629 NYS2d 268 [2d Dept. 1995]. Id. pps. 3, 4.
In Fed. Dep. Ins. Corp. [FDIC] v Key Financial Services, 1999 U.S. Dist. LEXIS 23006, the Court also cited Lexington:
"[U]nder New York law, the calculation of damages cannot be based on "wholly speculative theories" but instead must be grounded in fact to a "reasonable certainty." See Lexington 360 Associates v First Union National Bank of North Carolina, 234 AD2d 187, 651 NYS2d 490, 492 (1996). It is not necessary, however, in a breach of contract case in New York to determine damages with scientific precision to a complete certainty. See Lexington Products Limited v B.D. Communications, Inc., 677 F.2d 251, 253 (2nd Cir. 1982) (applying New York Law in breach of contract case heard under diversity jurisdiction). Furthermore, under the long-standing New York rule, when the existence of damage is certain, and the only uncertainty is as to its amount, the plaintiff will not be denied recovery of substantial damages. Moreover, the burden of uncertainty as to the amount of damage is upon the wrongdoer . . . "an estimate necessarily requires some improvisation, and the party who caused the loss may not insist on theoretical perfection."
Contemporary Mission, Inc. v Famous Music Corp., 557 F.2d 918, 926 (2nd Cir. 1977) (internal citations omitted) (quoting Entis v Atlantic Wire Cable Corp., 335 F.2d 759, 763 (2nd Cir. 1964)); see also Hirschfeld v IC Securities, Inc., 132 AD2d 332, 521 NYS2d 436, 440 (1987) (holding approximation of damages suffices)." Id. pps. 42-43.
In Hirschfeld, supra, the Court stated that " . . . while damages may not be determined by mere speculation or guess, evidence that, as a matter of just and reasonable inference', shows this existence and the extent thereof will suffice, even though the result is only an approximation" ( Cristallina v. Christie, Manson Woods Intl, 117 AD2d 284, 295)" (id. pps. 336-337).
In Burke, Kuirpers Mahoney, Inc. v The Dallas Dispatch Co., 253 AD 206, the damages issue arose over an employment contract's commission bases. The Court, after explaining how such was determined in such an agreement, stated " . . . the burden of proving damages . . . rests upon the plaintiff ( Ware Bros. Co. v Cortland C C Co., 192 NY 439, 210 ___ 122)" (id. p. 208).
B: Damages
The insured had the contractor, Mr. Mike Goodwin, testify that it took him, along with two others, two days to remove the damaged wood, replace it with new wood and restore the floor to good condition. He said the job, including labor and materials, came to $3,000 for which he prepared a bill in that amount. He testified that he elected, due to the circumstances concerning the insured, he would not charge him for the repair work and never give him the $3,000 bill.
The defense offered no evidence that this work was not for the damage due to the water leak or that the amount was not fair and reasonable for the nature and extent of the job involved. However, the defense argued that "absence of any allegation of fact showing damage," the mere fact that defendant breached the contract is insufficient to sustain a complain and, as well, because "the insured did not have to pay to have the floor repaired [he does not have] any ascertainable damages." The defense has cited several cases in support of these arguments against paying damages which, when reviewed by the Court, show no support for the defense position.
In Kenmore Co., Inc. v County of Erie cited by both parties, the Court set out the damage law principles that "first, it must be demonstrated with certainty that such damages have been caused by the breach and second, the alleged loss must be capable of proof with reasonable certainty . . . damages may not be purely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach;" and, "were fairly within the contemplation of the parties to the contract at the time it was made" (id. p. 261). In the remaining cases cited by the defense, each reflects the law outlined above and/or other contract damage jurisprudence applicable to the facts of this case.
In Bi-Economy Mkt, Inc., the Court stated "damages cannot be speculative or conjectural" and proven with reasonable certainty . . . capable of measurement [on] reliable facts without undue speculation" (id. p. 193); there must be "evidence sufficient to demonstrate damages flowing from the breach [of contract] ( Lexington 360 Assocs. v First Untion Nat'l Bk of N.C., at pps. 189-193) showing a "causal relationship between . . . breach of contract and the damages claimed, which is essential given that proximate cause is an element of breach of contract", Blumenfeld Dev. Gp., Ltd. v Roux Assocs., Inc., 5 Misc 3d 1015A (citing Lexington), pps. 3, 4.
In Fed. Deposit Ins. Corp. (FDIC) v Key Financial Services, the Court also cited Lexington for the point damages must be "grounded in fact to a reasonable certainty' [ Lexington] before going on to explain that based on New York Contract Law "[I]t is not necessary . . . to determine damages with scientific precision to a complete certainty" (id. p. 42) citing Contemporary Mission, Inc. v Famous Music Corp., 557 F. 2d 918 at page 926, under the long-standing New York rule, when the existence of damage is certain, and the only uncertainty is as to its amount, the plaintiff will not be denied recovery of substantial damages. Moreover, the burden of uncertainty as to the amount of damages is upon the wrongdoer . . . "an estimate necessarily requires some improvisation, and the party who caused the loss may not insist on theoretical perfection."
Contemporary Mission, Inc. v Famous Music Corp., 557 F.2d 918, 926 (2nd Cir. 1977) (internal citations omitted) (quoting Entis v Atlantic Wire Cable Corp., 335 F.2d 759, 763 (2nd Cir. 1964)); see also Hirschfeld v IC Securities, Inc., 132 AD2d 332, 521 NYS2d 436, 440 (1987) (holding approximation of damages suffices)."
In Hirschfeld, supra, the Court stated damages can be established "as a matter of just and reasonable inference [showing] their existence . . . the extent thereof will suffice, even though the result is only an approximation [citation omitted]" (id. pps. 336-337).
In Burke, Kuipers Mahoney v Dallas Dispatch Co., supra, the Court noted that "the burden of proving damages . . . rests upon the plaintiff" (id. p. 208). The Court finds that the insured met his burden of proving the damage to the hardwood floor was caused due to the moisture it was exposed to when the pipe below it allowed water to spray against its base resulting in it warping and buckling in reaction to this water exposure. He testified that the contractor that had sold him the hardwood floors looked at the damage and told him it was due to exposure to water and not any defect in the wood or any other cause; and the defense witness, Mr. Giacobbi's testimony, confirmed a direct relationship between the water escaping from a split in the water pipe directly below the area of the damaged floor causing the damage he observed to it as a result of this water exposure. The Court finds this evidence is sufficient to show the damages claimed was directly related to the water that escaped from the plumbing system directly below the floor's damaged area.
In Girard Ins. Co. v Taylor, supra, the Court ruled that "[T]he interest of the insured being that of the owner, the measure of her loss is, under the policy, the actual cash value of the property, not exceeding the cost of the repair" (id. p. 362) and "[D]amages are not measured . . . by what the defendant party saved by the breach, but by the natural and probable consequences of the breach to the plaintiff" ( Freund v Washington Square Press, Inc., supra, p. 384).
For the defense to argue that even if it were responsible under the policy for the cost to repair the floor because the contractor who supplied the labor and materials at a cost of $3,000 decided to not bill the insured, the insurance company was also the beneficiary of this largess in that it could take credit against the $3,000 otherwise due as an offset leaving the amount due the insured totally satisfied.
This is not correct, the "measure of her loss, under the policy, the actual cash value of the property, not exceeding the cost of repair" ( Girard Ins. Co., supra, p. 362) a damage that is not measured by what the defendant saved by the breach of contract, but by the natural and probable consequence of the breach to the plaintiff ( Freund, supra, p. 384).
Thus, once the insured was denied coverage by the carrier whether he did no repairs and incurred no expenses until the legal issue over coverage had been resolved or, as in this case, he hired a contractor to correct the situation for $3,000, once it is determined that the defendant was liable under the insurance contract to pay for the cost of repair the payment for this cost being "the actual cash value of the [repair of the] property . . . is the measure of her loss . . . under the policy" ( Girard Ins. Co.), the $3,000 being the risk value then whether paid by agreement to a contractor hired by the carrier and/or directly to the insured for his actual loss based on a paid bill or an estimate, the $3,000 is still due to be paid without regard to whether someone else gave him $3,000 (a bank loan or private loan, or as in this case, a gift of the value of the labor and materials).
The Court finds that the insured has shown that the $3,000 cost to fix the floor (labor and materials) was a fair and reasonable amount based upon the testimony of Mr. Goodwin and the defendant's claim because Mr. Goodwin elected to forgive payment also applied to them contractual obligation to otherwise do so is rejected.
Conclusion
Allstate Insurance Company issued a policy that promised to cover floor damage caused by a "sudden and accidental" escape of water from a home plumbing system. In a separate section of the policy it excluded water escaping from the home plumbing system if it seeped out over a period of time (weeks, months or years) leading to a damage claim.
In 1980 the Appellate Division Fourth Department in the case of Allstate Insurance Company v Klock Oil Company, 73 AD2d 486, ruled that the contract phrase "sudden and accidental" was "not limited to an instantaneous happening" (id. p. 488) and therefore "an accidental discharge . . . would be both sudden and accidental', though undetected for a substantial period of time" ( Colonie Motors, Inc. v Hartford Acc. and Indem. Co., 145 AD2d 180 at p. 181, citing Allstate Ins. Co. v Klock Oil Co., at p. 488).
In 2006 in Hudson v Allstate Insurance Company, 25 AD3d 656, the insured sued on denial of his claim for property damage due to water escaping from his plumbing system denied by Allstate as being excluded. The Court rejected the Allstate claim the "sudden and accidental" discharge of water from the plumbing system was excluded by another section of the policy. The Court concluded there was a "latent ambiguity" causing a conflict between these two provisions of the policy and on the legal principle such ambiguities in general and, in an exclusion clause in particular, "must be resolved in favor of the insured" (id. p. 656).
The Court has found based upon the law in effect in this jurisdiction that a "sudden and accidental escape of water . . . from the plumbing system even though undetected for a substantial period of time" is covered under paragraph 15 of the insurance policy. The Court has rejected the Allstate claim based on paragraph 18 that the water leak from the plumbing system was due to "seepage . . . over a period of weeks, months or years, of water . . . from a plumbing . . . system" causing damage is excluded from the policy coverage.
In addition, the Court finds that the conditions listed under paragraph 15 a), b) and d) were never ruled out as the cause of the water pipe failure because Mr. Giacobbi never examined the area the plumber had only "patched". This was to allow an inspection: "I'll mark it so the insurance adjuster could . . . take a look (p. 10); and, as the plumber told Mr. Giacobbi: " . . . he put a temporary repair on it . . . some sort of a strap and . . . clamps, because he thought . . . he didn't want to repair it completely because he thought that I wanted to see it first." (p. 79).
Mr. Giacobbi explained that his job as an adjuster entails "First, my job is to determine if, in fact, it is a covered loss . . . " (p. 74) and before he visited he did not know anything except based on a report prepared by a claim handler's telephone interview of the insured: I knew there was a pipe . . . broken . . . water spraying . . . and floor damage" (p. 60).
Mr. Giacobbi, then, at the time he started his inspection to determine if "the broken pipe sprayed water causing floor damage" (as written in the claim handler's report) was a covered loss, knew from talking to the plumber that he had only patched the pipe's damaged area rather than repairing it completely because he thought I wanted to see it first (id).
Mr. Giacobbi knew that the reason the plumber left the pipe unrepaired was so he could see the condition of the pipe in order to determine what caused it to fail at that point and, yet, notwithstanding the fact he could have examined the pipe to see if the water damage due to its failure was a covered loss under paragraph 15 a), b) or d), he failed to do so before concluding it was not a covered loss under paragraph 15.
He said he could not get to where the break had occurred so without ascertaining why the pipe failed either by asking the plumber who had the foresight to leave the pipe unrepaired so Mr. Giacobbi could see its condition whether any of the conditions listed at paragraph 15 a), b) or d) existed or by examining it himself to rule out such coverage, he elected to speculate by concluding from the appearance of the damage to the floor none of the insurable conditions leading to the pipe failure at paragraph 15 a), b) or d) were involved (p. 78); and, furthermore reached the conclusion that the paragraph 18 seepage exclusion applied again with never having viewed the pipe damage area.
The Court has ruled applying the ambiguities rule involving exclusion of any clauses to use a "strict and narrow construction" based upon the language of the policy and the "burden to establish that the exclusion applies" being on the insurer; the failure of Mr. Giacobbi to actually examine the pipe before deciding to apply to paragraph 18 (a) and (b) exclusion due to seepage and/or to determine if the loss was insurable or not based upon failure of the pipe under paragraph 15 a), b) or d), that the insurer has failed to meet its burden to show the water leak that damaged the floor was not an insurable event under the policy terms.
Finally, Allstate's claim that because Mike Goodwin repaired the insured's floor supplying labor and materials valued at $3,000 but elected to not send a bill "out of the goodness of his heart" there was no proof of loss, was denied under the cases heretofore cited.
The Court finds the defense argument that no damages were due because the contractor, Mike Goodwin, decided not to send the $3,000 bill for the work to be spurious and for Allstate to attempt to piggyback on this generosity of Mr. Goodwin to make itself a beneficiary of it to avoid paying the $3,000 due under the policy is also reprehensible and outrageous conduct engaged in by Allstate Insurance Company.
The plaintiff is awarded $3,000 together with costs of this proceeding. This shall serve as the judgment and order of the Court.