Care, Custody, or Control, Water Damage Exclusion, Dominate Recent New Jersey Insurance Decisions

Mix a safe, a blowtorch, and $4,000,000 in pearls, and you have a dandy insurance coverage fight. Companion Trading Company, a New York business, purchased a safe from Mega Security Company, in New Jersey. Companion used the safe to store semi-precious jewelry, including pearls at its New York location. For some reason the safe door became immovable, and Companion called Mega in to investigate. Mega’s technician could not open the door, and so arranged to ship the safe back to New Jersey for further work. Over several days Mega employees and an outside technician worked on the safe in vain at Mega’s headquarters. Finally, they opened the safe by using a blowtorch. When Companion got it back and checked the contents, they saw that a valuable cache of pearls had been damaged.

Companion sued Mega in Manhattan Federal Court for $4,000,000. Mega’s insurer, Harleysville Insurance Company, defended under a reservation of rights and then brought a declaratory judgment action in New Jersey to avoid coverage. The appellate court sided with Harleysville, applying the “care, custody, or control” policy exclusion to deny coverage. The safe was in Mega’s facility and under its care and control throughout the repairs. “In accordance with the plain and unambiguous language in Harleysville’s policies, there is no coverage for Companion’s claims against Mega in the NY [sic] action.”

Harleysville Insurance Company v. Mega Security Company, April 8, 2019.

A Water Main is not a body of water, and its overflow is not a flood excluded from property coverage. That is the ruling of a New Jersey appellate panel. On September 30, 2015, a municipal water main broke under Knox Avenue in Cliffside Park, New Jersey. The pavement buckled across the street from Adrian Sosa’s home, and water gushed a foot into the air, flowing across the street into his driveway, then his garage, and finally into his basement. A foot of water flled the downstairs floor. Remediation cost Mr. Sosa more than $75,000. When he submitted a property damage claim to Massachusetts Bay Insurance Company, it was declined. An adjuster inspected, and concluded that the damage resulted from “surface and ground water intrusion.”

Mr. Sosa sued Massachusetts Bay. He lost in the lower court and then appealed. The appellate court ruled against the insurer. The court held that the “flood” exclusion must be read narrowly against the insurance company, and as used in the exclusion, “flood” means an inundation from the overflow of a body of water, whether natural or artificial, but it does not encompass water released from a broken water main as in this case. Nor does this event result from “surface water,” another exclusion raised, as it is not “water in lakes, ponds, streams, rivers, bogs, wetlands, bays, and ocean,” adopting a regulatory definition in the absence of a definition in the policy. “Simply put, the water that damaged plaintiff’s home was no longer ‘below the surface of the ground.’ By its plain meaning, the [exclusion] does not address damage caused by above-ground water.”

Sosa v. Mass. Bay Ins. Co., April 24, 2019.