INSURANCE-RELATED COURT CASES
Digested from case reports published online
Sewage backup defeats exclusion
A provision found in just about every commercial and personal property insurance policy issued in Ohio that bars coverage for damage caused by “water that backs up or overflows from a sewer” includes damage caused by sewage carried into an insured’s property by a backup or overflow event.
Sewage from the local sewer system backed up into property owned by Globalcor Associates, LLC, that housed the Bank Nightclub, a bar owned by Globalcor that was insured at the time by United Specialty Insurance Company. The bar subsequently hired AKC, Inc., doing business as Cleantech, to clean up the site and submitted a claim to its insurer.
United Specialty denied the claim because it said the damage was excluded by the policy’s provisions. Globalcor assigned its claim for damages to AKC. In its complaint, AKC alleged that United committed a breach of contract in denying the claim.
The trial court ruled in favor of United Specialty, and AKC appealed. The appellate court reversed the trial court, and the Supreme Court of Ohio reversed the appellate court.
On appeal, AKC argued that the trial court erred in granting summary judgment in favor of United Specialty based on the policy’s pollution exclusion, making three separate arguments. First, the Supreme Court of Ohio found that because the trial court did not apply the exclusionary provision related to backup or overflow, the issue was moot.
In its second argument, AKC contended that the trial court erred because it mistakenly assumed that a sanitary sewer line that carries raw sewage is the same as a storm sewer line that carries surface water runoff. The finding in question states that the exclusion for “water” backing up or overflowing from a sewer includes “raw sewage” that backs up or overflows from the same sewer line. The supreme court said that AKC failed to show that this finding was based on the assumption that a sanitary sewer line that carries raw sewage is the same as a storm sewer line that carries surface water runoff, and it declined to reach such a conclusion.
AKC’s third argument challenged the trial court’s finding that the exclusion for water that backs up or overflows from a sewer includes raw sewage that also backs up. AKC contended this was not the only interpretation that could be fairly placed on the policy language. The court concluded that the provision of the insurance contract was reasonably susceptible of more than one interpretation and therefore should be construed strictly against the insurer and liberally in favor of the insured.
The Supreme Court noted that the insurer could have excluded “sewage” from the policy by the simple addition of the word. The judgment of the trial court was reversed and the case remanded for further proceedings.
AKC, Inc., v. United Specialty Insurance Company—Ohio Supreme Court—October 6, 2021—No. 3540.