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River Vale at Holiday Farm Condominium Association-Apartment Section, Inc. v. Greater NY Mutual Ins.

BER-L-1390-08 (N.J. Super. Law Div. 2009) (Unpublished)

INSURANCE; WATER DAMAGE — If an insurer wants to exclude damage from all underground sources of water, it needs to expressly indicate such in its policy; therefore, a subterranean water exclusion does not necessarily bar coverage for damage caused by a water main rupture where the actual cause of the rupture is unknown.

A large water main underneath a condominium building ruptured and flooded the first floor of the building. This caused the evacuations of more than 150 residents for several days. The condominium association sued its insurer to compel coverage after the insurer asserted that it was not responsible for covering the damage. The insurer, seeking a dismissal of the association’s action, offered an expert who testified that the damage to the water main resulted from shifts in the soil under the building and this was not covered under the policy. The Court pointed out that when a certain peril is excluded from an insurance policy, that exclusion only applies when the excluded peril is the proximate cause of the damage. It also pointed out that the policy had an elimination clause which explicitly removed the proximate cause provision. This was allowable as a matter of public policy. The Court, however, found that the testimony given by the experts for the insurer were net opinions and were not factually substantiated since those experts had not conducted any testing of the soil around and under the building. It also found the insurance policy was unclear as to whether the subterranean water exclusion in the policy referred only to naturally occurring underwater sources or if artificial sources were also excluded. It added that if the insurer wanted all underground sources of water to be excluded it could have inserted language indicating so. As a result, the Court concluded that the subterranean water exclusion did not bar the association’s claims and that since the facts as to the actual cause of the water main rupture were unknown, the insurer’s motion for dismissal on summary judgment had to be denied and the association’s action could proceed for a factual determination.

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