On December 5, 2018, Justice Patrick J. McGrath of the New York Supreme Court, Rensselaer County, issued a decision in the case Black River Partners, et al. v. Adirondack Mechanical Services and Liberty Mutual Insurance Company, Index No. 252627/2016, granting partial summary judgment declaring that all of the plaintiff insured’s property damage and resulting business interruption loss is subject to a $50,000 “per occurrence” Water Damage sub-limit and dismissing all claims against Liberty in excess of $50,000.
Plaintiff (“Black River Partners”) was the owner and operator of a hydroelectric generating facility. Black River Partners hired co-defendant Adirondack Mechanical Services to disassemble, inspect, and supervise repairs to one of the two generating units at the powerhouse. Two weeks after the unit was reinstalled, the powerhouse flooded, causing significant water damage. After the powerhouse was de-watered, plaintiff discovered that the plate separating the powerhouse from the water had shifted and eight bolts had come loose. Plaintiff sought coverage under its first-party property insurance policy. Its insurer, Liberty, denied coverage on the grounds that the cause of the failure of the mechanism securing the unit to the powerhouse was excluded faulty workmanship. Plaintiff brought suit against Adirondack for negligence and, in the alternative, Liberty for declaratory judgment that the policy provides coverage for its property damage and business interruption losses. Plaintiff sought damages for Liberty’s breach of contract in the amount of $1,325,000. Liberty moved for partial summary judgment, seeking an order declaring that the $50,000 Water Damage sub-limit applied to Plaintiff’s claimed property damage and business interruption loss and dismissing all claims in excess of the sub-limit.
In its December 5, 2018 Decision and Order, the Court agreed with Liberty that both the claimed property damage and resulting business interruption loss were subject to the $50,000 Water Damage sub-limit. The policy provided coverage for Water Damage, i.e., “loss, including salvage expenses, on property damaged by water resulting from any One Accident,” subject to a single $50,000 sub-limit. The policy defined an “accident” as a “sudden and accidental breakdown of an Object or part thereof which manifests itself at the time of its occurrence by physical damage that necessitates repair or replacement of the Object or part thereof.” An “object” in turn is defined as “any mechanical or electrical machine or apparatus used for the generation . . . of electrical power.” An “[o]ccurrence” is a “loss, incident or series of incidents immediately arising out of a single event or originating case and includes all resultant or concomitant Named Insured losses.”
The Court concluded that the sudden failure of the bolts securing the unit to the powerhouse, which allowed water to enter the powerhouse, fell squarely within the Water Damage sub-limit. Justice McGrath also held that there was no evidence that the runner or turbine blades were damaged and that “[a]ll of the claimed property damage was due to water that flooded the powerhouse.” Further, the sub-limit applied “per occurrence” and included “all resultant or concomitant Named Insured losses.” Thus, the Court held that “Liberty is entitled to an Order declaring that coverage for all loss and damage, including business interruption loss, resulting from water is subject to a $50,000 water damage sub-limit and dismissing Plaintiff’s claims against Liberty in excess of the $50,000 sub-limit.”
In addition, the Court denied Adirondack’s cross-motion for summary judgment, in which Adirondack argued that it did not breach its duty of care in the installation of the unit, and that Plaintiff had released it from all past and future claims. The Court held that Liberty successfully raised questions of fact as to the cause of the malfunction of the mechanism securing the unit to the powerhouse. The court also agreed with Liberty that the release entered into between Plaintiff and Adirondack did not “express any intention to exempt Adirondack from liability for damages which may result from its own failure to use due care.” The release, therefore, did not bar Plaintiff’s claims against Adirondack.