Embassy's Sewer Line Ruins Co-Op's Basement, Insurance Carrier Pays $270K

The board at a small eight-unit co-op in Lenox Hill is celebrating a hefty insurance payout following a sewage disaster. After the collapse of the wastewater line at a neighboring embassy building swamped the co-op’s boiler room and basement, the co-op’s insurance carrier denied coverage, recommending instead that it file a lawsuit against the embassy. The outlook was anything but promising, but after a four-month investigation, the embassy’s carrier agreed to pay the co-op’s $270,000 claim. “We were pretty surprised it agreed to pay the entire amount,” says Aaron Weber, a property manager at Weber Realty Management and the co-op’s agent.

The money covers the cost of the extensive repair project, which included digging trenches in the co-op’s basement, excavating the bottommost floor of a shareholder’s triplex unit, as well as cameras and dye tests, which established that the embassy’s sewer and water main lines were the source of the damage. “Sewage and water were seeping into the soil, flowing into our property,” Weber says. 

The deluge put the co-op in a financially complicated position. More than $80,000 was needed to cover the excavations and tests and another $100,000 for the actual repairs. Additional costs included legal and architectural fees, insurance and other overheads. “The building had just invested in state of the art boilers, so the reserve fund was depleted,” Weber explains. To pay its mounting bills, the co-op closed on two $175,000 lines of credit from the National Cooperative Bank with a 6.25% interest rate. 

When the co-op’s carrier denied coverage, citing wear-and-tear exclusions, litigation looked like the only path to recoup repair costs. The board hired a public adjuster, who made the same recommendation as the insurance carrier — file a lawsuit against the embassy. However, the board treasurer believed a direct claim with its carrier could be effective. Weber sent a letter to the embassy’s attorney, asking it to make the necessary wastewater repairs and demanding the name of its insurance carrier.

After the investigation confirmed that the flooding was the embassy’s fault, a face-to-face video call was secured with the claims specialist for the embassy’s insurance carrier. The board treasurer clearly articulated the emotional trauma the flooding caused. “She explained how hard it was to live in the building with the smell of sewage,” Weber says. The board also provided a breakdown of all the expenses and how it had been advised to file a lawsuit. “Within two days, the carrier said it would meet our demands in full,” he says.

During the excavation, the co-op took the opportunity to carry out $90,000 in repairs to its own wastewater pipes, which had been exposed for the first time in decades. These costs were not included in the claim. Weber believes it is possible the pipe deterioration was the result of utility work in the street and a fiber-optic cable installation. “If your street is turned to Swiss cheese, you might want to hire a company to scan your pipes and see if there's any damage,” he advises. The next steps for the building are to pay back the line of credit and build back its capital reserves.