When an Insurer Won’t Pay, a Challenge Is Possible

Some of the most common occurrences in apartment living have to do with water leaks or some type of wastewater backup. When that happens, who is obligated to make the repairs?

If we’re talking about a cooperative housing corporation, the co-op is obligated to make basic repairs to replace any irreparably damaged walls, floors and ceilings in the apartment. But that doesn’t necessarily take care of the contents of the apartment or any out-of-pocket expenses that the shareholder would have for additional living expenses, like if they have to stay in a hotel or temporary housing while the apartment repairs are being done.

Would shareholders turn to their insurance company to take care of all that?

A lot of my practice involves apportioning repair obligations and other related costs that the shareholders and the co-op have to bear after one of these events. Every shareholder should have what’s called an HO-6 homeowners policy, which is similar to what single-family or two-family homeowners carry. Most co-ops, in their house rules, require that shareholders carry homeowners insurance.

The benefit of an HO-6 is that in addition to covering what insurance companies refer to as betterments and improvements — meaning upgrades that the shareholders install, whether it’s fancier flooring, walls or ceilings — the policy is specifically designed to cover both upgrades as well as the contents of the apartment, meaning personal property like clothing, furniture, appliances and all that stuff. Usually under the proprietary lease, the co-op is exempted from repairing or replacing contents in the apartment. So an HO-6 policy is very important when it comes to getting indemnification, which is a fancy word for reimbursements, from your insurance carrier without having to fight the co-op on negligence and nuisance claims. 

Let’s talk about wastewater. If there’s a backup in an apartment and the resident has to move out for a month, is that also covered?

The answer is yes. An HO-6 policy is designed to reimburse the shareholder — or unit-owner, because the policies are offered to both co-ops and condominiums — for any wastewater backups that come through the common plumbing systems of the building. If someone dumps grease or baby wipes down a waste line and it causes a backup in a neighbor’s apartment, the policy is designed to provide the shareholder or unit-owner with reimbursements within the policy limits for personal property and also the betterments and improvements.

But most importantly, the policy covers your temporary relocation, because often in these situations you can’t reside in the apartment until it’s built back. Those costs are significant, and while it’s not impossible to get the co-op to pay for that, it’s difficult. So one should always look to one’s HO-6 homeowners policy to get those reimbursements for hotel, food and other costs that you would need to incur while you’re not in your home. 

And do insurance carriers always come through with that? 

It’s a mixed bag. Insurance companies, including the major carriers that most shareholders purchase policies from, have been known to try to deny these claims initially. It usually happens when the insurance company sends an adjuster out to the building to investigate the loss. And that inevitably comes down to the adjuster asking building employees, often a superintendent, where the loss originated from. Sometimes if the superintendent or someone from the insurance company has reason to believe that the clog or the defect originated somewhere outside the insured’s apartment, whether it’s the common plumbing system or another apartment, the insurance company will try to deny coverage and issue a no coverage position on that.

If you get some pushback from your insurance carrier, what can you do? 

When a carrier tries to deny a wastewater-backup claim, it can be challenged successfully. The language in the policy is pretty clear. It should not matter where the clog or plumbing defect that caused the backup occurred. As long as it occurs inside the building somewhere, these policies are designed to cover shareholders and condominium unit-owners for their losses.

Sometimes insurance companies will try to use what we call the municipal sewer or sewage backup exclusion, or the groundwater exclusion to apply to a situation where the clog or defect originates inside the building, but that can also be successfully challenged. 

To sum up, what’s the takeaway?

If there’s a wastewater backup and your insurance carrier says, “We’re not covering it because it originated outside your apartment,” you should challenge it. The policies read in the insured’s favor under these circumstances, and as lawyers say, anything ambiguous in the policy is construed in favor of the shareholder or unit-owner.

FROM THE COURTS March 5, 2021

Fireman’s Fund Ins. Co. v. Accredited Sur. & Cas. Co., 2021 NY Slip Op 30647(U) (N.Y. Sup. Ct. 2021)

A co-op hired a contractor to undertake work in its building, which in turn, hired a subcontractor to undertake some electrical work. Three of the subcontractor’s employees were electrocuted and sued the contractor, the co-op and its management for negligence. The contract between the contractor and the co-op required the contractor to have insurance, naming the co-op as an additional insured. It also included a very broad indemnification for “any act, omission or conduct of contractor, or any subcontractor of any tier, or any of their respective agents and employees.” The insurance company declined coverage, and the co-op sued for a declaratory judgment that the contractor’s insurer must provide primary, non-contributory defense; must indemnify the co-op on the personal injury actions; and must reimburse the co-op for the legal fees incurred in connection with the case so far and for the declaratory judgment legal fees.