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), 1997 WL 139485 (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.
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.
==================
ST. PAUL FIRE AND MARINE INSURANCE v. 111 TENANTS CORP., (S.D.N.Y. 2003)
Key Passages from this case (1)
GERARD E. LYNCH, District Judge
Plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul") seeks
a declaratory judgment that the costs incurred by defendant 111 Tenants
Corporation ("the co-op") in
replacing the gas distribution system in its cooperative apartment
building at 111 East 75th Street in Manhattan are not covered by the
co-op's "all risks" policy with St. Paul. The co-op counterclaims for
the amount it expended on the replacement. The parties have cross-moved
for summary judgment. Because the losses here come within the policy's
exclusion for losses arising from deterioration of covered property, St.
Paul's motion will be granted.
BACKGROUND
On July 24, 2000, the superintendent of the co-op, Daniel Orszulak,
smelled gas in the basement of the building and reported it to
Consolidated Edison ("Con Ed"), the co-op's gas utility company. A Con
Ed inspector found a leak in a gas line immediately above one of the 38
basement gas meters, and shut off the building's gas supply. As required
by the New York City administrative code § 27-922(d), the entire gas
piping system was tested at about six times the normal pressure before
service was restored. When the required tests were conducted, 32 of the
38 gas risers leading from the basement to the apartments failed; in a
second round of testing performed by a different contractor, 27 of the
risers failed again. The co-op accordingly undertook to replace the
entire gas distribution system, and submitted a claim to St. Paul for
the ensuing costs, which totaled $358,000.00.
St. Paul argues that it has no obligation to cover the cost of
replacing the system because the "all risk" policy expressly excludes
losses "caused or made worse by . . . deterioration [or] any quality . .
. that causes [the covered property] to deteriorate or destroy itself"
(Schreiner Affid. Ex. 1 ("Policy"), at STP 00071.) Alternatively, St.
Paul argues that the loss here is not covered because it comes within a
policy provision that, it argues, excludes losses due to "testing." (P.
Mem. at 11.) For reasons unclear to the Court, St. Paul does not rely on
the policy's exclusion for "loss caused . . . by the enforcement of any
ordinance . . . governing the . . . repair . . . of any property."
(Policy, at STP 00069.)
The co-op argues in
response that (1) a triable issue of fact remains as to whether the
initial gas leak was due to deterioration; (2) even if the first leak
was due to deterioration, the large number of leaks detected during the
subsequent testing were actually caused by the high gas pressure used
during the testing itself.
DISCUSSION
1. Summary Judgment Standard
When adjudicating a motion for summary judgment, a court must resolve
any ambiguities in favor of the nonmoving party, although "the nonmoving
party may not rely on conclusory allegations or unsubstantiated
speculation."
Scotto v. Almenas, 143 F.3d 105, 114
(2d Cir. 1998). The court "is not to weigh the evidence but is instead
required to view the evidence in the light most favorable to the party
opposing summary judgment, to draw all reasonable inferences in favor of
that party, and to eschew credibility assessments."
Weyant v. Okst, 101 F.3d 845, 854
(2d Cir. 1996). Summary judgment is then appropriate if "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits . . . show that there is no genuine issue
as to any material fact and that the moving party is entitled to a
judgment as a matter of law." Fed.R.Civ.P. 56(c).
To establish a genuine issue of material fact, the opposing party
"`must produce specific facts indicating' that a genuine factual issue
exists."
Scotto, 143 F.3d at 114 (quoting
Wright v. Coughlin, 132 F.3d 133, 137 (2d Cir. 1998));
see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986). "If the evidence [produced by the nonmoving party] is merely
colorable, or is not significantly probative, summary judgment may be
granted."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986) (internal citations omitted).
II. The "Testing" Exclusion
Both parties in this action misconstrue the obvious intent of the
policy's exclusion of losses due to "Defects — Programming Errors." That
provision reads:
We won't cover loss caused by or resulting from:
• defects or errors in the materials, design, development,
distribution, processing, manufacturing, workmanship, testing,
installation, alteration, or repair of covered property;
• errors in systems programming; or
• errors in instructions to a machine.
(Policy, at STP 00068.) The co-op argues that, since the heading refers
to "Programming," and since the second and third bullet points
underneath appear to relate to computer equipment, it somehow follows
that the first item must also be limited to such equipment. Thus, claims
the co-op, this exclusion does not apply to the situation at hand.
St. Paul's characterization of this interpretation as "strained" (P.
Mem. at 8) is understated; the co-op's argument is untenable. The
paragraph may be clumsily constructed, in that it includes certain
exclusions specific to computers or machinery under the umbrella of a
much more general exclusion for defects. But the first bullet point
expressly applies to all "covered property," not merely computers, and
there is nothing unique to computerized machinery about the sorts of
"defects or errors" excluded by the provision. The co-op's reliance on
the heading "Defects — programing errors" to suggest that the second
term limits the first is also misplaced. The same typographic convention
is used elsewhere in the Policy in headings over lists enumerating
independent and alternative grounds for exclusion. For example, a
paragraph headed "Settling — smog" excludes losses caused by smog or
by "settling . . . of a pavement, foundation, wall, root or ceiling."
(Policy at STP 00070.) Similarly, the exclusions in the "Defects —
programming errors" paragraph are independent, and the first bullet
point applies to defects in all covered property, including the gas
system, not only to computers.
St. Paul's
preferred reading of the exclusion is no more persuasive, however. St.
Paul elides the paragraph to claim that the Policy "expressly excludes
coverage for . . . loss "caused by or resulting from . . . testing."`
(P. Mem. at 1.) But the syntax of the exclusion will not bear that
interpretation. The word "testing" clearly forms part of the completion
of the prepositional phrase modifying "defects or errors," in parallel
with "materials, design, development," etc. That is, the term excludes
not "loss caused by or resulting from . . . testing," but "loss caused
by or resulting from: defects or errors in the . . . testing . . . of
covered property." However, neither party claims or has provided any
evidence suggesting that there were any "defects or errors" in the
testing performed by either contractor. If the normal and proper conduct
of tests required by the building code produced (or merely revealed)
leaks, this exclusion does not apply.
III. The Deterioration Exclusion
The only evidence in the record concerning the cause of the leaks
consists two experts' reports proffered by St. Paul. Both experts
concluded, through a process of elimination, that the underlying cause
of all of the leaks here, and the exclusive
cause of the July 2000 leak that initiated the entire chain of events,
was deterioration rather than any external event. The system, as far as
anyone can tell, was over 80 years old in 2000. (Urinyi Affid. ¶ 20.)
According to a report prepared about four months after the initial leak
by the engineering firm of Wiss, Janney, Elstner Associates, the
possible causes of gas leaks in general are (1) "external events" such
as "vandalism . . . building movement, structural distress, settlement,
undermining, and collapse," and (2) "serviceability concerns" that can
be "readily repaired with routine maintenance," such as "loose fittings,
cracks, corrosion, or broken welds." (Urinyi Affid. Ex. 2 at 6 ¶ 8.)
Any external causes, however, would be accompanied by other
"indicators," which were not present here. (Id; see also id. at 4
(noting absence of bending, distortion, or kinks in piping, absence of
"loss of piping support hangers," and absence of "apparent distress to
structure of building" or to "building finishes, such as paint damage or
jammed doors").) By this process of elimination, the "most probable"
causes would be such matters as "loose fittings, cracks, or broken
welds" (id. at 5 ¶ 6) that are matters of "routine maintenance" (id.
at 6 ¶ 8). Another engineering firm, MU Associates, in a report
prepared a year after the initial leak, similarly reported that a leak
could in general be caused by vandalism, settlement, or improper
support, but found "with reasonable scientific probability" that these
were not the cause because of the absence of evidence supporting such
conclusions. (Id., Ex. 3, at 6, 8-9.) The MU Associates report
further ruled out corrosion because it observed that the piping was in
good condition. (Id. at 9.) MU Associates concluded that "with
reasonable scientific probability," the failure was "due to the normal
drying of the sealant used to join the threaded pipe and threaded
fittings." Id. at 10.)
The co-op
presents no evidence to contradict these conclusions. Instead, it argues
that the evidence presented by St. Paul is "conclusory" and thus
insufficient to carry its burden of proving that the exclusion applies.
(D. Mem. Opp. at 11.) While the co-op is correct that St. Paul's experts
do not provide affirmative evidence of the cause of the leaks, one of
them identifies a specific type of ordinary deterioration as the cause
"with reasonable scientific probability" (Urinyi Aff. Ex. 3 at 10), and
that opinion is supported by a rational process of elimination of
alternative causes that is consistent with the findings of both experts.
The co-op, in contrast, presents no evidence of any external cause of
the leaks and no coherent challenge to St. Paul's experts. In the
absence of any challenge to the credibility or clarity of the
engineering studies, the co-op must, to establish a genuine issue of
fact, suggest at a minimum a specific alternative cause that (1) would
render this a covered loss and (2) was overlooked by the engineers in
their process of elimination. Otherwise, there are no "reasonable
inferences" to be drawn in the coop's favor that would defeat summary
judgment.
Weyant, 101 F.3d at 854. With respect to the initial leak, the co-op has not suggested any cause not considered and ruled out by the engineers.
Cf. Cigna Property Cas. Ins. Co. v. Bayliner Marine Corp., Dkt. No. 92 Civ. 7891 (AGS),
1995 WL 125386, at *9-*10
(S.D.N.Y. Mar. 22, 1995) (citing, in findings after bench trial,
specific facts overlooked by expert in eliminating "other reasonable
causes of the fire").
The co-op argues that the absence of any affirmative evidence that the
sealant had in fact deteriorated renders this record "insufficient as a
matter of law" for a grant of summary judgment to St. Paul. However, the
only "law" it cites is an unpublished opinion of a New York trial
court, whose text is unavailable on any database accessible by this
Court, and for which the co-op has not provided a slip opinion. (D. Mem.
at 13), citing 375 Riverside Drive v. Fireman's Insurance Co. of Washington. D.C., 2000 WL 1723950
(Sup.Ct. N.Y. Cty., Nov. 1, 2000)); the Westlaw cite provided is
actually to a First Department ruling that merely notes "Appeals
withdrawn.")
The co-op does present an
alternative cause for the subsequent, additional leaks detected during
the high-pressure testing: the excessive pressure of the testing itself.
The co-op claims that "the pipes were in good working order until
enhanced pressure testing was administered" (D. Mem. Opp. at 16; D.
Cross-Motion Mem. at 13), and relies on 20 East 35 Owners Corp. v. Great American Insurance Co., Dkt. No. 95 Civ. 2642 (KTD), 1995 WL 438172
(S.D.N.Y. Aug. 5, 1996), where a single gas leak led to a shutdown of
the gas distribution system and the required high-pressure testing. In 20 East,
the court held that an all-risks policy covered repairs that were
carried out in order that the system pass the tests. Unlike the instant
case, however, (1) the initial leak was caused by a drilling accident,
and (2) the plumber determined prior to high-pressure testing
that the system would not pass the test unless all the gas cocks, which
had become worn with age, were replaced. Id. at *2. The court
found that, since the cocks functioned adequately under normal usage,
and the anticipated leakage would only occur under the high-pressure
conditions of the testing, the "damages complained of . . . resulted not
from deterioration or wear and tear, but from the [original] rupturing
of the gas pipe," which occasioned the need for testing and was a
covered event under the policy. Id. at *3
Thus, 20 East,
properly understood, does not support the co-op's position. The court
held that, for the purposes of analyzing an exclusion from "all-risk"
insurance coverage, the gas cock leakage was attributable, for insurance
purposes, not to the testing, but to the (covered) drilling accident
responsible for the shutdown of the system and the legally-mandated
testing that in turn necessitated replacement of the entire system. 20 East
thus turned on the fact that the initial leak was due to a covered
event rather than the wear and tear or deterioration. It does not
require a finding that testing-induced repairs are a covered loss here,
where the initial leak leading to the testing was caused by
deterioration.
In this case, as in 20 East,
the policy excludes coverage for losses "caused directly or indirectly
by the enforcement of any ordinance, regulation, or law governing the
use, construction, repair, or demolition of any property." (Policy, at
STP 00069.) An Endorsement to the policy excepts from this exclusion
losses to the undamaged portion of a building caused by enforcement of an ordinance, but only if the loss to the damaged part of the building is otherwise covered by the policy. (Policy, at STP 00079.) Cf. 20 East, 1996 WL 438172, at *4 (citing similar policy language). Thus, if the initial gas leak — the "damaged" part of the building — had been covered by the policy (as it was in 20 East),
the multiple leaks caused by testing of the rest of the system — the
part of the building undamaged by the initial event — could be a covered
loss. But here, the record unambiguously points to deterioration of the
system as the cause of the initial gas leak, and that loss is not
covered by the policy. Thus the Endorsement's exception does not apply,
and the Ordinance exclusion does.
At
any rate, the argument that damages sustained during properly-conducted,
legally required testing are covered by an all-risks policy is
unsustainable. The co-op maintains that the system did not leak during
"normal" usage, and thus that there was no loss until the testing was
conducted.
But the ordinance requiring testing at greater than normal pressure embodies a
legislative determination that a gas system that leaks under the more
extreme conditions should not be put back into service, and must be
repaired or replaced. So even if the
concluding language used by MU Associates — "[t]he age of the gas piping
and the higher pressure used during the testing would cause the sealant
to fail" (Urinyi Affid. Ex. 3, at 10) — supports a finding that the
testing caused the extensive leaks,
it anyway establishes that the testing revealed conditions that, by
statute, rendered the system intolerably prone to new leaks. It is that
underlying noncompliance with the Building Code that required
replacement of the gas distribution system; the testing merely exposed
it. The co-op presents no evidence that the system's weaknesses were the
result of anything other than the deterioration and wear-and-tear found
by the insurer's experts.
While the cited language could be read to support such a finding, it
could also be read otherwise. The report earlier opines that "When
testing the gas distribution lines in older buildings, . . . gas leakage
will be detected due to the normal drying of the pipe sealant. . . ."
(Uranyi Aff'd. Ex. 3, at 8 (emphasis added).) Whether the gas leaks
identified during the testing were pre-existing leaks discovered by the
high-pressure testing or were new leaks caused by the gas pressure used
in the tests themselves is a factual question. Accordingly, for purposes
of this motion, the reading more favorable to the co-op is assumed.
This conclusion is consistent with two similar cases that have been decided in this District, 61 Jane Street Tenants Corp. v. Great American Ins. Co., Dkt. No. 00 Civ. 1049 (GEL), 2001 WL 40774 (S.D.N.Y. Jan. 17, 2001), and 415 East 80th Street Housing Corp. v. Agricultural Insurance Co., Dkt. No. 94 Civ. 4021 (TPG), 1997 WL 139485 (S.D.N.Y. Mar. 27, 1997). In 61 Jane,
the co-op contended that the "system was working well despite [its]
defects" and argued that therefore the shutoff of the gas system (which
was necessitated by a small fire that had not itself damaged the system)
was the relevant cause of the leaks detected during the required
testing. 61 Jane, 2001 WL 40774, at *5
The court rejected this characterization, noting that "Had the
building's gas delivery system been up to code," the expensive repairs
would not have been necessary. (Id.) In 415 East, 1997 WL 139485, at *1,
the court cited an engineer's opinion that "pressure testing had
revealed the leaks [in 19 apartments], but did not cause them," and thus
found that a wear and tear exclusion in the "all risks" policy applied.
While the co-op distinguishes 415 East on the grounds that the
engineer's report states unequivocally that the testing "revealed"
leaks, and not that it "caused" them (D. Mem. at 15), the fact that a
gas system is by statute required to pass the high-pressure tests
renders this a distinction without a difference: A gas distribution
system is in need of replacement or repair once it has deteriorated to
the point where the required testing will show leaks, and the arrival at
that state of disrepair is the "loss" for which the co-op seeks
indemnification from St. Paul.
In 61 Jane,
moreover, the policy had been amended to exclude costs "associated with
the enforcement of any ordinance or law which requires any Insured or
others to test plumbing, gas or other buildings systems for integrity or
condition." Id. at *3.
Accordingly, the replacement of the gas system was the result of
ordinary deterioration and is therefore excluded from coverage, and St.
Paul is entitled to judgment as a matter of law.
CONCLUSION
For the above reasons, plaintiff's motion for summary judgment is granted, and defendant's motion is denied.
SO ORDERED.
===================
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
375 RIVERSIDE DRIVE OWNERS, INC.,
Plaintiff,
Index No.11954/97
v.
FIREMEN'S INSURANCE COMPANY
OF WASHINGTON, D.C., THUNDERBIRD
REALTY CORP., JADAM EQUITIES., and
ROXANNE MANAGEMENT.
Defendants.
SCHLESINGER, J:
Plaintiff 375 Riverside Drive Owners, Inc. ("375 Riverside Drive")
moves for summary judgment against defendant Fireman's Insurance Company
of Washington, D.C. ("Fireman's") in the sum of $401,619.78.
Alternatively, plaintiff seeks leave to amend its complaint to add
various additional parties as defendants. Firemen's opposes summary
judgment.
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.
Footnote
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.
