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Insurance Coverage: No Winners in Decision by NY High Court

On February 19, 2015, the New York Court of Appeals issued a decision denying two homeowners coverage for water damage caused by a water main that burst ("exploded"?) next to their house in Erie County. The water flooded their finished basement and caused $110,000 in damage.

The homeowners filed a claim with their homeowners insurance company, Allstate. Allstate denied the claim, saying the policy did not cover damage caused by water "on or below the surface of the ground, regardless of its source". The homeowners sued Allstate for breach of contract (the insurance policy) and their local town (Hamburg) for negligence. The homeowners argued that the insurance policy does cover water damage caused by "explosions", and the water main "exploded".

The homeowners won in the lower court (Supreme Court) and on appeal. But New York's highest court sided with Allstate and said, sorry for your $110,000 in damage, homeowners, but the policy language is "unambiguous", and the policy does not cover water damage caused by under-the-surface water. And we don't think the water main "exploded" in the way you are arguing.

It's a shame. By the strict reading of the law and the insurance policy, the Court of Appeals probably got it right. BUT...courts have a toolbox filled with tools. They can justify any result in any case with the tools they have available and sometimes reach decisions as a way of forcing settlements. The insurance company ultimately "won" on paper but probably spent more than $110,000 defending the case anyway. There are no true winners here.





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