New York’s aging pipelines provide property claims and litigation lessons.
By Patrick Milone , Seth Weinstein
Hidden dangers lurk beneath the streets of New York City by virtue of over 6,000 miles of aging pipelines transporting natural gas to thousands of buildings. The city’s underground network of pipelines is one of the oldest in the country; The Center for an Urban Future reports that the average age of the pipes is 56 years old. Complicating matters is that many of the apartment buildings are more than 75 years old and often contain internal gas distribution piping systems that have not been maintained, inspected, or repaired/replaced since installation. The gas is relied upon for heating the buildings and, in apartment buildings, for cooking.
Consolidated Edison Company of New York Inc. (Con Edison) provides gas, steam, and electricity to more than 10 million people living in New York City and Westchester County, and is authorized to withhold or discontinue its gas service whenever a gas distribution line or a part thereof is deemed to be unsafe. To help ensure a safe system, Con Edison requires that an internal system pass a gas meter pressure test in order to restore service that is discontinued as a result of someone smelling gas, a fire, a break in the pipe itself caused by faulty workmanship of a contractor, or some other dangerous condition. This also applies in instances where gas service to a building is interrupted for longer than six months.
Throughout our combined 60 years working with the insurance industry, we have been involved in many claims that initially arise because someone in a New York City apartment complex smells gas and contacts the local utility company, which then discontinues the gas service while investigating, refusing to turn it back on until the gas lines are pressure tested.
The pressure testing often reveals leaks in the system that are the result of pre-existing wear and tear and deterioration of the gas lines over a period of time. The building owner often is required to replace the gas piping system throughout the building as a result of the failure of pressure testing.
Each claim involving gas lines differs. The most publicized cases arise from gas explosions, which result in first- and third-party property claims, as well as general liability claims involving personal injuries. We will address only the first-party property claims that arise from the failure of gas lines to survive the pressure testing that is mandated before gas service can be restored, along with the various policy exclusions and extensions of coverage that may impact these claims. Of course, as with all claims, a complete and thorough investigation of the facts for each loss must be undertaken and supported by, when necessary, qualified experts.
Wear and Tear Exclusion
The pressure testing that is legally required to be conducted prior to the restoration of gas service often detects failures due to wear and tear and corrosion of the gas piping system. For instance, in 415 East 80th Street Housing Corp. v. Agricultural Insurance Co., Dkt. No. 94 Civ. 4021 (TPG),
Applying the policy’s wear and tear exclusion, the court found for the carrier. Noting that the first occurrence in the series of events was the leak in the gas line outside of the insured’s building, the court explained that “if a fire or explosion had resulted, and if the insured’s building had been damaged thereby, it would surely have been a casualty covered by the insurance policy. However, no such casualty happened. Instead, the events led to the discovery of leakage inside plaintiff’s building.”
Further, the court held that this was caused by the wear and tear and deterioration of the interior lines, and it is these lines that were repaired for the amount claimed. (See also Simkowitz v. Firemen’s Fund Ins. Co.)
Faulty Workmanship Exclusion
Insureds also have filed claims seeking recovery for the replacement of gas lines damaged by contractors who mistakenly punctured gas pipes while doing unrelated work. Insurance companies often will deny such claims based on the standard ISO commercial property policy exclusion for loss or damage caused by “faulty, inadequate, or defective…workmanship, repair, construction [and] renovation,” as well as “maintenance of part or all of any property on or off the described premises.”
New York courts have upheld the validity of the faulty workmanship exclusion, but we have not found any reported cases involving gas lines. For example, see Copacabana Realty LLC v. Fireman’s Fund Ins. Co., which dismissed the insured’s coverage complaint, as the insurer demonstrated that its defective or inadequate workmanship exclusion clearly and unambiguously applied to the insured’s property damage, and Bodine v. Am. Intl. Ins. Co., which found that the “faulty, inadequate, or defective planning” exclusion applied where the insured contracted to have an addition to his house constructed, and this construction was found to be one of various reasons that the insured’s retaining wall collapsed.
In at least one case, New York courts have found that the faulty workmanship exclusion applies only to work performed by or on behalf of the insured, despite the lack of such limitation in the policy wording. As an example, see 242-44 E. 77th St., LLC v. Greater N.Y. Mut. Ins. Co., in which the court states, “The only reasonable explanation of the negligent work exclusion is that it applies to negligent work by or on behalf of the insured in planning, designing, or constructing the insured building, which results in damage to the building.”
Ordinance or Law Exclusion/Coverage
The standard ISO commercial property policy contains an ordinance or law exclusion that precludes coverage for “any loss or damage caused directly or indirectly by the enforcement of any ordinance of law: (1) regulating the construction, use, or repair of any property; or (2) requiring the tearing down of any property, including the cost of removing its debris.”
In 20 East 35 Owners Corp. v. Great Am. Ins. Co., a tenant’s contractor drilled through the floor of the insured’s building and accidentally ruptured a gas line, which resulted in Con Edison shutting off the gas to the entire building. A plumber who performed a preliminary pressure test of the gas lines became concerned that gas would leak due to the age of the gas cocks and, specifically, that the gas meter headers that control gas flow and the individual apartment gas valves had to be replaced because they would not sustain the pressure test due to its age and worn condition. After the gas cocks were replaced, the building passed the test and gas service was restored.
The insured sought recovery for the cost of the gas cocks and to repair damage to the walls, but did not seek coverage for the repair of the gas pipe itself. Significantly, the insurers admitted that the initial break of the gas pipe in the tenant’s floor was a covered cause of loss.
The court found that the insured was entitled to coverage, holding that Section 27-922(d) of the New York City Building Code is “an ordinance regulating the construction use or repair of any property,” but that compliance with the ordinance was not the cause of the claimed damages. The court found that the damages arose solely through the ordinance’s enforcement, which required the demolition of the operational gas cocks and portions of the apartment walls. “These gas cocks were part of the same property and were not damaged by the covered cause of loss, namely, the ruptured gas pipe. Replacement of the old but functional gas cocks was necessary to satisfy the ordinance requirement that the gas system be tested at eight times the normal working conditions.”
The court also found that the policy’s wear and tear exclusion was inapplicable, stating that since the carrier admitted the initial break of the gas pipe was a covered cause of loss, the required replacement of the gas cocks and portions of the walls resulted not from deterioration or wear and tear, but rather from the rupturing of the gas pipe.
In 61 Jane Street Tenants Corp. v. Great American Insurance Company and American Alliance Insurance Company, the building owner sought a declaration that its all-risk insurance policy covered the expenses of repairing a gas distribution system in its building that failed a pressure test after being turned off due to a fire involving an apartment stove. The court found in favor of the insurer, based on the ordinance or law exclusion, which specifically precluded coverage for “the cost associated with the enforcement of any ordinance or law that requires [the insured] to test plumbing, gas, or other building systems for integrity or condition.”
The court found that the stove fire did not damage the gas system or cause the system to fail the test; rather, the weaknesses in the system predated the fire and the fire was simply the occasion for its discovery. Since the language in the policy excluding costs associated with testing was clear, the court found that the losses claimed by the plaintiff were not covered by the insurance policy.
Insurers often argue that ordinance or law coverage is only applicable for properties that sustain covered, direct physical damage that “results in enforcement of the ordinance or law.” For instance, in St. George Tower v Insurance Co. of Greater New York, the insurer was not obligated to cover the cost of repairing concrete floor slabs to bring the property into compliance with the building code because the problem with the slabs was not related to the covered water damage, and, as such, the ordinance or law coverage was not triggered.
In situations where the claim involves uncovered, direct physical damage to the insured’s building caused by faulty workmanship (damage caused by faulty workmanship caused the gas distribution system to be shut down and the legally required testing to be performed), insurers have a potential argument that a policy’s affirmative ordinance or law coverage is not triggered. (S.D.N.Y. Mar. 27, 1997), the insured smelled gas. Con Edison discovered a leak in the main gas line outside the insured’s building and turned off the gas service to the building while it repaired the line. Pressure testing revealed leaks throughout the building.
ST. PAUL FIRE AND MARINE INSURANCE v. 111 TENANTS CORP., (S.D.N.Y. 2003)
OPINION AND ORDER
• defects or errors in the materials, design, development, distribution, processing, manufacturing, workmanship, testing, installation, alteration, or repair of covered property;
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
375 RIVERSIDE DRIVE OWNERS, INC.,
FIREMEN'S INSURANCE COMPANY
OF WASHINGTON, D.C., THUNDERBIRD
REALTY CORP., JADAM EQUITIES., and
Plaintiff is a cooperative corporation that owns a building located at 375 Riverside Dive. On or about June 1, 1996, Fireman's issued plaintiff a policy covering all risks, with certain exceptions, through June 1, 1997.
This dispute has its genesis in a kitchen renovation performed in apartment 11C by the former sponsor of the corporative in late 1996. As part of the project, gas lines were moved and reconfigured. The apartment was then sold to Peter and Mary Ross. Soon after moving into the premises, Mrs. Ross states that she began to smell gas in the kitchen. Con Edison was called but did not detect a leak. On January 11, 1997, Mrs. Ross states that she again detected the odor of gas in the kitchen. Con Edison came to the premises a second time. On this occasion a gas leak was discovered coming from a kitchen outlet. As a result of the leak, Con Edison shut off gas service to the entire building.
In order to reinstate gas service to a building § 27-922(d) of the Administrative Code of the City of New York requires pressure testing of the entire gas piping system. The gas lines are subjected to pressure six times greater then what the pipes normally carry. This testing was carried out by Gregory Quattlander, a licensed Master Plumber. The gas piping system was unable to pass the mandated integrity tests. There were numerous leaks in the system requiring replacement of the piping.
375 Riverside Drive immediately filed a claim with Firemen's seeking to recoup the loss under the insurance policy. Firemen's disclaimed, inter alia, on the ground that the policy did not cover loss for "wear and tear." It stated as follows:
…We find that there was no physical loss of or damage to Covered Property resulting from any Covered Cause of Loss. The proximate cause of this casualty is attributed to improper gas line work which resulted in leaks thereby necessitating a complete shut down of gas supply to the building and the subsequent discovery of various other leaks in the gas supply system most likely attributable to age related deficiencies of the existing materials…On or about January 30, 1998 plaintiff commenced this action sounding in breach of contract. After engaging in some discovery proceedings, 375 Riverside moved for summary judgment. Plaintiff's position is straight forward - a direct physical loss was sustained as a result of a fortuitous event beyond its control. The gas piping system was shut down because of leak. The pipes were pressure tested pursuant to the Administrative Code. The system was unable to withstand the vigors of the integrity tests requiring replacement of the pipes.
Firemen's opposes summary judgment on two grounds. It contends that summary judgment is premature because it has not had an opportunity to depose Gregory Quattlander. Second, it urges that there is an issue of fact as to the cause of the damage to the gas pipe system. In support of this latter contention, Firemen's points to an affidavit of its expert, Jerome Levine, who opines that the integrity test did not cause the damage. Rather there were pre-existing cracks or defects in the system "caused by normal vibration of the pipes and normal degradation of the pipe compound over the last 70 years." (Levin Aff. At 8).
I found defendant's arguments sufficiently persuasive at oral argument to order a deposition of Quattlander prior to ruling on summary judgment. Levine was also produced for an examination before trial. The parties were then given an opportunity to supplement the record. The motion is now ripe for review.¹
In order to recover under an all risk insurance policy, the plaintiff must show that the loss was caused by a fortuitous event beyond the insured's control (New York State Electric & Gas Corp., 204 AD2d 226 (1st Dept. 1994). A fortuitous event is an occurrence that happens by chance or accident ( see Black's Law Dictionary 7th ed) and causes a loss. If this is established, the insurer "bears the burden of demonstrating that an exclusion in the policy defeats the claim." ( Moneta Development Corp. v. Generali Insurance Co., 212 AD2d 428, 429 (1st Dept. 1995).
Here, a series of fortuitous events caused the loss. First, a gas leak was discovered by Mrs. Ross and confirmed by Con Edison. As a result of the gas leak in the single gas line, the building's entire gas piping system was shut down. In order to reinstate service, the City mandated high pressure testing of the gas piping system.
Plaintiff's contention that the high pressure tests resulted in numerous leaks requiring replacement of the gas pipes is sustained by Quattlander's deposition testimony. He testified that in June, 1996 he did a "walk-through" (Quattlander Deposition at p.25). A visual inspection revealed that the gas distribution system was in good condition. Prior to January 11, 1997 there were no leaks. Had there been leaks prior to the testing, a "pungent odor" would have been detected (Id., at p. 85). Nor was there any visual evidence of pipe deterioration (Id., at p.87).
In addition, plaintiff has submitted affidavits from other individuals connected to the building who state, without contradiction, that prior to the events culminating in the gas leak discovered n January 11, 1997, there were no reported gas leaks or any problems with the gas piping system.
When questioned as to what caused the leaks, Quattlander testified as follows:
A. Whenever a building is subjected to pressure tests above and beyond gas pressure - - gas is free flowing. There's always pilot lights in the building. Gas is at a quarter to a half-pound only so it reaches the top floor. When you subject a buildingto a pressure test of three pounds, every threaded joint has a compound in it, which was installed as both a sealant and a lubricant upon original installation. The sealant hardens and makes a solid joint that is subjected to a maximum of a half-pound over its life. You now subject it to three pounds of air pressure and you create more leaks then were ever present in the time frame of the building [Quattlander Deposition at pp. 85-86].
Q. Were you able to determine why any of those five that you examined leaked, in other words, why pressure was allowed to escape from those?
A. No. The jointing was not disconnected to look at the actual internals of the fittings. We know they were not leaking prior to performing the pressure test.
Q. And because they leaked afterwards, you concluded that the test had something to do with the leak?
A. Absolutely [Quattlander Deposition at pp. 95].
Accordingly, the burden now shifts to the defendant to demonstrate that the loss is excluded under the terms of the policy. As noted earlier, Firemen's urges that an issue of fact precludes summary judgment. Defendant argues that Jerome Levine contradicts Quattlander's conclusion as to what caused the leak. Levine opines that the tests did not rupture the piping system. Rather the pipe compound utilized to seal the pipes was no longer effective in preventing gas leaks. Levine testified that the pipe compound had a finite shelf life of 30 to 35 years (Levine Deposition at p. 74). Thus, according to Levine, the pipes had been leaking for 30 to 35 years (Id. At p. 74). However, the leaks were minor. The leaks dissipated into the atmosphere and did not cause any problems (Id. At p. 79). Since the leaks were immaterial, it was not necessary to replace the pipe joint (Id., at p. 80).
Firemen's contention that "wear and tear" caused the defect in the gas piping system and was disclosed by the integrity test is insufficient as a matter of law. "Wear and tear" is a natural deterioration that occurs over age and gradually brings the sys to a halt. That is not what happened in this case. The basic undisputable fact that goes to the core of this controversy is that there was a functioning gas piping system at 375 riverside Drive prior to January 11, 1997. Gas may have leaked, as Levine contends, in miniscule amounts. However, he concedes that it was not necessary to change the pipes because the leaks were immaterial. Accordingly, prior to January 11, 1997, the pipes functioned, as designed to deliver gas to the apartments at 375 Riverside Drive. This functioning system came to an abrupt halt when Con Edison ordered the building to shut off the gas in the entire building because of the leak in apartment 11-C. The integrity test subjected the pipes to higher pressure then what the pipes normally carried causing the pipes to fail.
The court's finding here is supported by the holding of 20 East 35 Owners Corp. v. Great American Insurance Company, 1996 WL 438172 9SDNY). In that case a gas leak required Con Edison to shut off the gas supply to a building in New York City. Similar to the facts in this case, the building's gas values locks could not withstand the pressure test conducted pursuant to § 27-922(d) pf the Administrative Code.
Plaintiff sought recovery under an all risk policy. Defendant insurer denied the claim. Judge Duffy granted summary judgment in favor of the plaintiff funding that the loss was covered under the express terms of the policy. The Court stated in relevant part, as follows:
Paragraph C(2) of the insurance coverage policy states that the policy does not cover "loss or damage caused by or resulting from wear and tear…rust, corrosion, fungus, decay." Presumedly, Defendants cited this exclusion because of Critelli's statements that the cocks were worn through the years and would not withstand the extreme pressure test. Even though the gas supply system would have failed the extreme pressure test due to wear and tear, the fact remains that, until that time, the system was in proper working order and the gas cocks could withstand the gas pressure under normal working conditions. In fact, the building superintendent reported that the building had "no history of gas leaks or repairs to the gas supply over the past seven years." (Sweet Aff., Ex. C). Prior to the mandatory pressure testing, the deterioration of the gas supply system was inconsequential. As such, the damages complained or herein, that is the required replacement of the gas cocks and portions of the walls, resulted not from deterioration or wear and tear, but from the rupturing of the gas pipe.Similarly here, the gas piping system was old and may have had some inconsequential leaks. The leaks, however, did not prevent the gas system from functioning. Its replacement can be traced directly to the gas leak in Apartment 11C and the inability of the gas piping system to pass the pressure tests.
Accordingly, the Court finds that as a mater of law the loss falls within the provisions of he all risk policy and that defendant has failed to establish that the loss meets any policy exclusion.
For these reasons, plaintiff is granted summary judgment in the sum of $401,619.78 with interest from January 11, 1997. The motion to amend the complaint is denied as moot.
This decision constitutes the order of the Court.
1. Firemen's contends that further deposition of non-party witnesses - Con Edison and City employees - are necessary. I disagree. this action has been pending since October, 1997. Depositions of non-party witnesses should have taken place in this two year period.