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UNGER v. LIBERTY MUT. INS. CO.

March 21, 1994

LARRY UNGER, Plaintiff,
v.
LIBERTY MUTUAL INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: ARTHUR D. SPATT

 SPATT, District Judge.

 This is an action to recover property damages for losses under a "standard flood insurance policy" ("the policy") resulting from two floods occurring on October 30, 1991 and December 11, 1992. The plaintiff owns a single family residence located at 78 Arizona Avenue in Long Beach in Nassau County.

 The following facts were agreed upon by both parties by stipulation:

 First, that an insurance policy was issued to the plaintiff Larry Unger and that he paid the premiums for it.

 Second, that the policy is a standard flood insurance policy (Plf's Exh. 1).

 Third, that a flood occurred at the insured premises on October 30, 1991.

 Fourth, a second flood occurred on December 11, 1992. And Mr. Unger likewise suffered a loss to the premises and contents on that day.

 Fifth, both of those floods are covered occurrences under the policy.

 Sixth, that representatives of the defendant, Liberty Mutual, appeared at the premises and inspected the premises at each occurrence.

 THE ISSUES

 There are two liability issues in this case. The first issue is whether the lower level in the plaintiff's house, where the losses in both floods occurred, is a basement as defined in the flood insurance policy. If the area in question is a basement, the policy only covers for rough carpentry and not for the finished areas or the contents. The second issue concerns the proof of loss provision in the policy and whether the plaintiff complied with this provision with regard to the second flood damage of December 11, 1992.

 The plaintiff contends that, within the definition of the policy, his house does not have a basement. The defendant contends the area in question is a basement within the terms of the policy.

 Under Article II of the policy entitled "Definitions," a basement is defined as follows:

 
"Basement means any area of the building having its floor subgrade (below ground level) on all sides."

 In Article V of the policy entitled "Property Not Covered," there is the following language:

 
"We do not cover and will not pay for damages to or loss of any of the following:
 
. . . .
 
F. . . . finished basement walls, floors, ceilings and other improvements to a basement having its floor subgrade on all sides, and contents, machinery, building equipment and fixtures in such basement areas; except that, as to this subparagraph (F), coverage is provided in basement areas . . . [for certain equipment]" (emphasis supplied).

 In the policy renewal declarations attached to the policy, which, under the definition of "Policy," were part of the policies and specified the details of the insurance provided and the property covered, the "Building" being insured is described as having "two" floors including a "finished basement." The "contents location" to be insured was described as the "basement and above."

 The plaintiff contends that there is a driveway that gradually slopes down from the street to a garage and a door to the lower level of his home (see Plf's Exh. 2B), and that the lower door leading to the lower level is above ground level. The plaintiff further contends that the sloping driveway, although below the sidewalk and street, creates a new ground level adjacent to the lower door.

 The guidelines promulgated by the Federal Emergency Management Agency ("FEMA") define ground level and excavations below the ground level as follows:

 
"(1) ground level means the naturally existing grade at the time of original construction.
 
(2) excavation of the natural grade for some distance away from the structure does not present a basement."

 It is undisputed that the plaintiff's driveway was excavated during construction to create access to the garage and entry door to the lower level thereby altering the natural grade. It is also undisputed that the bottom of the lower level doorway is approximately two feet lower than the sidewalk, roadway, and surrounding property.

 With regard to the first issue to be determined, the question presented is, when the policy defines a basement as an "area of the building having its floor subgrade (below ground level) on all sides," is "ground level" the sidewalk and street area, as defendant contends or is it the ground level directly and immediately adjacent to the lower level door?

 As stated above, the second issue involves the plaintiff's failure to file a proof of loss covering the claim for the contents of the lower level, with regard to the second flood of December 11, 1992.

 THE TRIAL - FINDINGS OF FACT

 This opinion and order includes the Court's findings of fact and conclusions of law as required by Fed. R. Civ. P. 52(a) (see also Colonial Exchange Ltd. Partnership v. Continental Casualty, 923 F.2d 257 [2d Cir. 1991]).

 The policy renewal of February 20, 1991, (Dft's Exh. C) contains a building description code of 121 and a contents description code of 2. On the reverse side of the form, with difficulty, one can decipher the definitions of these two sets of numbers so as to indicate a basement at the premises. The Court finds that there is no evidence that a reasonably prudent policy holder would turn over the renewal sheet to discover that these numbers refer to a "basement." Moreover, this self-serving portion of an insurance contract, which is adhesive by nature, is not determinative of the crucial issue in this case.

 On a document marked "Flood Policy Declarations" and "Renewal," under the designation "Basement Description," is inserted the words "Finished basement and above." This renewal is dated February 19, 1992, subsequent to the first flood. Moreover, the plaintiff testified that he received this document after he had made a claim for the October 30, 1991 flood, which claim was denied, and after he had paid the premium for that policy. In any event, the self-serving declaration in the renewal sheet is also not dispositive.

 Nor is the issue determined in any manner by a prior 1985/1986 policy stating that there is "limited coverage on basement" (Dft's Exh. D).

 The defendant produced Ciro Capano, a professional engineer, who rendered certain opinions. He explained that the lower level was 1'8" to 2' below grade, a relatively mild decline in a fairly flat area. He was asked by defendant's counsel to explain what he meant by grade:

 
Q And what is grade?
 
A Grade is normally taken as the mean elevation of the ground of the surrounding area.
 
In this case due to the level nature of the area, it would be taken at the sidewalk (Tr. at pp. 36-37) (emphasis supplied).

 However, defendant's expert conceded that one had to step up to enter the lower level.

 
Q And when you visited the property did you observe the area you heard described as a driveway?
 
A Yes.
 
Q And could you describe that driveway for us?
 
A That driveway sloped down from the natural grade, approximately one foot eight inches. The driveway sloped down toward the garage door.
 
Q And the door -- the entrance door to Mr. Unger's lowest level, was that at the bottom of the driveway?
 
A Yes, adjacent to the garage door at one foot eight below the ground level.
 
Q You heard testimony from Mr. Unger that there was an approximately one or two footstep up at that point?
 
A Yes. It is common in construction for having water seep into to drudge, for prevention.
 
. . . .
 
Q Looking at the concrete, underneath which is the ground, and let's use 2A. As you leave that concrete and enter the lower level of the home, do you step down or step up?
 
A You step up.
 
Q Thank you.
 
So, you are stepping up from the level of the ground outside the door to the lower level of the home?
 
A You are stepping up --
 
Q Yes or no.
 
A Repeat the question.
 
Q Are you stepping up from the ground to the floor at the lower level of the house?

 Mr. Capano testified that in his opinion, the lower level was a basement within the terms of the policy. He also was of the opinion that the lower level was a basement within the provisions of the New York State Building Code. The Court finds that the New York State Building Code definition of a basement, whatever that is, is not determinative in this insurance contract area of the law. A basement is what the parties, by way of their insurance contract, determine it to be. In any event, the New York Building Code has no definition of grade and its definition of a basement is very similar to the insurance policy at issue, namely, a basement means any area of the building having its floor subgrade (below ground level on all sides).

 Significantly, Mr. Capano also testified that the policy definition of "basement" made no reference to the level of the street or the sidewalk.

 The defendant introduced evidence that on October 15, 1982, the plaintiff filled out an "application for certificate of occupancy" in which he stated that his residence was a "1 family dwelling with finished basement" (Dft's Exh. E). In addition, the plans annexed to the application state that the "basement floor not more than 2 feet below sidewalk." Also, the certificate of occupancy issued on October 28, 1982 (Dft's Exh. F) includes the word "basement."

 However, this extrinsic evidence in which the plaintiff may have considered the lower level of his house to be a basement within the lay person's view of what a basement should be, namely, a lower level of the house, is not determinative. The issue here is what did the policy mean by the term "basement." Again, the definition in this flood policy so as to trigger the conditions and exclusions in the policy, is clear, it is: "Any area of the building having its floor subgrade (below ground level) on all sides."

 With regard to the second issue, there is a proof of loss requirement in the policy which reads as follows:

 
I. Requirements in Case of Loss: Should a flood loss occur to your insured property, you must:
 
. . . .
 
3. Within 60 days after the loss, send us a proof of loss, which is your statement as to the amount you are claiming under the policy signed and sworn to by you and ...

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