INSURANCE LAW REVIEW

Judge Rejects Insurer Version Of Building Roof Collapse Based On Smell Of Water; Calls Suit Almost ‘Frivolous’

The owners of a 5-story, block-wide commercial building in Newark, N.J., which for over 30 years (up to 1991) was leased by the state of New Jersey, for its upstate offices, were awarded more than $12,000,000 for a loss sustained in January 1994.

However, Judge Beatrice Shainswit, in Supreme Court, New York County, noted that the policy limit was $10,000,000. The judge, who rejected the position of the insurer, Atlas Assurance Company of America d/b/a as GRE Insurance Group, calling it almost entirely "frivolous," assessed interest from the date the action was sinned, August 7, 1995.

The insurer brought this as a declaratory action against its insured, Newark Center Building Company, a New York company, seeking a ruling in support of its total rejection of the claim. The loss resulted from extensive water damage in the vacant building, due to roof cracks resulting from a period of extreme winter weather. While the structural damage to the building was relatively minimal, the heavy influx of water into the interior brought about a soaking of the asbestos fireproofing in the wall. With the drying out, the asbestos became friable and asbestos dust permeated the third, fourth and fifth floors. The condition required that the floors be evacuated and sealed, pending clean up and decontamination. The building remained unoccupied for 4 years because of the asbestos condition.

Judge Shainswit, in her 21-page decision on January 15, showed considerable disdain for the insurance company’s suit and for its almost non-existent support for its position that the loss was not covered by the policy because damage was not the result of the storm incident but of a continuing leakage condition over a period of time. She characterized the insurer’s conduct as one of a "spiteful child" and she said it was motivated by "desperation" in an effort to avoid paying the claim.

Because of the declaratory action suit, the issue was stalled for four years until it came before Judge Shainswit. ‘The building owners were seeking reimbursement for the water damage to the roof and the interior throughout the building as well as for abatement of contamination by the sprayed-on asbestos fireproofing on the three upper floors. The issues were tried before Judge Shainswit, without a jury and lasted seven days.

The judge said, at the very beginning of her decision, that "defendant (the insured) has every right to the coverage it seeks, in full, and that this lawsuit by the plaintiff insurance company is without the slightest merit. Indeed, plaintiff’s position borders so closely on the frivolous as to warrant serious consideration of defendant’s charge of bad faith." Actually, the business owners had asked the court to apply sanctions to the defendant, but she declined "in the exercise of discretion."

Extreme Winter Weather

It was the extreme winter weather in January, 1994, with temperatures decreasing to -20 and coupled with seven inches of ice and snow. But the weather also changed virtually overnight, with temperatures rising to 55?and with 1.74 inches of rain. The testimony of the owners showed that large accumulation of water on the roof resulted in massive cracking on the huge roof. Hundreds of thousands of gallons of water then cascaded into the interior of the building, doing structural damage and saturating the asbestos.

In supporting its contention that the damage did not result from the snow/ice/rain storm, but rather by seepage over a long period of time, the insurer brought in its "expert," David Patterson, an architect who testified that the collection of water was from seepage over a long period. He said he knew that because of his keen sense of the smell of

water which permitted him to judge the precise age of the water. He asserted in his testimony that he could determine the age of water stagnating in the ruptured roof membrane, asserting that in this case it had to be present in the roof for at least two weeks before the disaster. He said he could differentiate between five month stagnant water and 6 month by his sense of smell. (Michael Carbajal’s column in the January 17 edition. commented on this case. The column was titled "By the Smell of His Nose." -ed.).

Based largely on this testimony, the insurer cited the exclusion in the policy which freed it from liability for the claim. The exclusion stated: "We will not pay for loss or damages caused by or resulting from..." "continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more."

Judge Shainswit said the support for the insurer’s denial of coverage based on this exclusion, "was, to put it mildly, minimal." She cited testimony controverting the Patterson smell test and rejected it along with other testimony of experts offered by the insurer. She also cited inspections conducted by the insurer’s staff, which testified to the sound condition of the roof prior to the storm as well as to a claim the previous January from a windstorm that damaged equipment on the same roof but found no roof anomalies.

The policy, as noted by Judge Shainswit, was "all risk" and included repeated reference to covering all losses that "are fortuitous." She said this loss met the definition under New York law. An attempt to reduce the loss because of a co-insurance clause, was rejected by the judge as beyond the statute of limitations, adding that it had not been cited before the suit was in progress.

Newark Center Building Company was represented by Jonathan Wilkofsky and Mark Friedman of Wilkofsky, Friedman, Karel & Cummins of New York City.

Mr. Wilkofsky is on the board of directors of Citizens Against Unfair Insurance Practices. a citizens consumer lobby. He was also lead trial counsel in the 1 990 case of Riordan v. Nationwide, 756 F. Supp 732 (SDNY 1990) which stands as the only case in the history of the State of New York where victims of insurance company misconduct was able to recover punitive damages and attorneys’ fees. He was lead counsel representing former Washington Redskins’ captain, Vince Promuto, whose business, covering an area of 4 square blocks, was incinerated in minutes in a 1989 gas pipeline explosion, which was the second largest pipeline explosion in the country. Con Edison paid millions and settled the matter after 17 days of trial.

Atlas Assurance Company was represented by Galvano & Xanthakis of New York City and Buckley, King & Bluso of Cleveland, Ohio.

For More Information Contact:

Wilkofsky, Friedman, Karel & Cummins
299 Broadway - Suite 1700, New York, NY 10007
Tel: 212-285-0510
FAX: 212-285-0531
Internet: info@wfkclaw.com

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