At times property insurance policies require a flow chart to navigate through in determining whether a particular loss is covered. If a policy exclusion applies, then the policyholder would not be entitled to coverage for a loss. However, some policies have exceptions to exclusions, which can bring a loss, or a portion of a loss, back into the coverage column. This is what recently occurred in a case from Upstate New York.

In Platek v. Town of Hamburg,1 Allstate Indemnity Company appealed an order of the trial court in a breach of contract action. The order granted the policyholder’s motion for summary judgment; declared the loss covered by the insurance policy and directed Allstate to pay the claim. The policyholder had sued Allstate for beach of contract, alleging that it breached the insurance contract by failing to provide coverage for water damage to the basement of the home after a water main ruptured and water flooded the property. Allstate denied coverage based on an exclusion in the insurance policy, which stated that there was no coverage for losses caused by:

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.

The policyholder argued for summary judgment based upon a provision in the insurance policy setting forth an exception to the exclusion relied upon by Allstate. The exception provided coverage for:

[S]udden and accidental direct physical loss caused by fire, explosion or theft resulting from [the exclusion].

The policyholder argued that the exception to the exclusion applied because their claimed loss was caused by an “explosion” of the water main.

Allstate characterized the exception as an “ensuing loss” provision, and argued that any initial loss to the insured’s property caused by the conditions in the exclusion for “[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. The policyholder disagreed that there must be a secondary or ensuing loss, and asserted that the exception applied because there was an “explosion [of the water main] resulting from” the conditions set forth in the exclusion, i.e., “[w]ater … below the surface of the ground,” and causing “sudden and accidental direct physical loss” to their property.

The appellate court held that contrary to Allstate’s contention, the relevant language of the insurance policy did not specify that the exception applied only to a secondary or ensuing loss or that the explosion must result from a loss to the insured’s property. Rather, the appellate court held that the policy stated the exception applied where the loss to the insured’s property was “caused by [an] explosion … resulting from the exclusion.” Additionally, the appellate court noted that the term “explosion” was not defined in the insurance policy, and applied its plain and ordinary meaning; “to burst violently as a result of pressure from within.”

The policyholder submitted the affidavit of an expert engineer to establish as a matter of law that there was an “explosion” of the water main next to their property caused by the build up of pressure and that the pressure in the water main resulted from the policy exclusion, “[w]ater … below the surface of the ground,” and that the explosion of the water main caused “sudden and accidental direct physical loss” to the policyholder’s property. Allstate did not oppose that affidavit.

The appellate court held the policy provision ambiguous and construed it in favor of the policyholder and coverage for the loss. In doing so, the appellate court affirmed the trial court’s ruling as to Allstate’s liability for the loss.

It should be noted that while this case was a victory for the policyholder, there is a dissenting opinion in the case written by two justices of the appellate court. A dissenting opinion means those justices of the appellate court participating in the dissent do not agree with the majority’s opinion. Dissenting opinions are not binding authority in future cases. The dissent in this case would have reversed the trial court ruling and would have entered judgment in favor of Allstate as to no liability for the loss. But as one of my law school professors used to say; a dissent is just that; a dissent from the majority view.

1 Platek v. Town of Hamburg, 2012 WL 2626955 (N.Y. App.Div. 4th Dept. July 06, 2012)