A lengthy rainstorm caused damage to three water basins designed to manage stormwater flow from buildings and parking lots near a shopping center. The increased flow of stormwater into the ground caused substantial sinkholes to form in two of the three basins. The insured repaired and filled the sinkholes but state officials issued an ordinance, requiring a redesign of the basins to prevent future sinkhole damage. The insured sought coverage for all damage arising out of the sinkholes. The insurer disclaimed coverage.
A New York federal court agreed with the insurer that costs for filling in the sinkholes were not covered under the policy. In this regard, the court noted the exclusion was unambiguous, stating that “[t]he policy in question clearly excepts the cost of filling sinkholes …” However, the court found that the policy was “ambiguous and should be interpreted in favor of [the insured]” with respect to the costs in connection with the basin redesign. The policy was particularly unclear as to coverage for the redesign because of its requirement that the insurer pay for improvements due to land use regulations, but not for environmental ordinances. According to the court, it was unclear whether the state ordinance was a land use ordinance or environmental regulation. The ambiguity was construed in favor of the insured and the insurer was charged with coverage for the redesign.
For a copy of the decision, click here.