Court Rules Insured Must Pay Multiple Deductibles in Condominium Property Damage Action

A federal court has ruled an insured must pay a deductible for each separate condominium damaged by faulty construction. In Zurich American Insurance Company v. NewMech, Inc., 12-cv-01568, defective pipe connections caused property damage to nearly 30 units and to common areas. The insurer paid nearly $1 million to repair the building and sought reimbursement from the insured for a deductible of $25,000 per “claim”  for each unit damaged, plus one for common areas. The insured argued one deductible applied. Judge Richard Kyle ruled that while the policy did not specifically define “claim”, the term was unambiguous and subject to only one reasonable interpretation: a claim against the insured by a single owner of property damaged as the result of an occurrence. The court looked to the policy’s description of the insured’s right to select a deductible on a “per claim basis” or “ per occurrence basis” to inform its decision in interpreting the term “claim”. Because “per claim basis” meant all damages sustained by any one person because of ‘property damage’ as the result of any one occurrence, the term claim referred to a damaged third-party’s individual claim against the  insured, not the insured’s aggregate claim against the insurer. If the insured’s interpretation were adopted, the distinction between a deductible on a “per claim” vs. “per occurrence” basis would be meaningless so long as the insured submitted one aggregated request for benefits.

If you have any questions about this or any other insurance law matters, please contact us.