INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Cat litter caper
CC 145 Main owned an apartment building in Newmarket, New Hampshire. It purchased from Union Mutual Fire Insurance Company a businessowners policy that included all risk property insurance, which provided that the insurer would “pay for direct physical loss of or damage to” the covered property unless coverage was specifically limited or excluded.
CC 145 Main contended, and Union Mutual did not dispute, that the insured property sustained damage when a tenant poured cat litter down a toilet, clogging an interior pipe and causing water to overflow from a shower and toilet. The property required significant cleaning and repair, and the tenants were required to temporarily relocate.
CC 145 Main filed a claim with Union Mutual for water damage, which the insurer denied pursuant to a policy provision that excluded coverage for damage caused by “[w]ater that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment.”
CC 145 Main filed a complaint seeking a declaration that the water exclusion did not apply to its claim. Union Mutual filed a motion for summary judgment, arguing that the damage at issue was caused by water that overflowed from “drains” within the meaning of the exclusion. CC 145 Main objected and filed a cross-motion for summary judgment. The trial court granted CC 145 Main’s motion and denied Union Mutual’s motion, concluding that it was unclear whether the word “drain” in the water exclusion applied to shower and toilet drains and therefore the water exclusion was ambiguous and must be construed in favor of CC 145 Main. Union Mutual appealed.
On appeal, Union Mutual argued that the trial court erred by finding the water exclusion ambiguous, because the only reasonable interpretation of the exclusion was that it applied to water that overflowed from toilet and shower drains. CC 145 Main countered that the trial court reached the correct result because the relevant portion of the water exclusion was ambiguous, when read in context.
According to the appellate court, the language at issue is contained within the following exclusion:
- We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
…
- Water
(1) Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge);
(2) Mudslide or mudflow;
(3) Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings; or
(5) Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1), (3) or (4), or material carried or otherwise moved by mudslide or mudflow.
The court found Union Mutual’s argument reasonable that “[t]he toilet that backed up and overflowed was connected to a drain”—the drain is part of the “system” that the toilet relies on to flush away the waste—and therefore a toilet is “related equipment” to a drain. Union Mutual also correctly observed that there was no language in the exclusion that explicitly limited the application of this term to certain kinds of drains or causes of overflow.
The court found, however, that CC 145 Main presented a reasonable alternative interpretation of the exclusion. It argued that context contained in the policy limited the water exclusion’s applicability to water damage precipitated by off-premises circumstances or events. As CC 145 Main correctly observed, the other subsections of the water exclusion contemplate only causes of damage—flooding from any body of water, mudslide or mudflow, and groundwater “flowing or seeping” into the property—that necessarily originate outside the property and cause water to flow into it.
Additionally, the water exclusion contains the following example:
An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall or other boundary or containment system fails in whole or in part, for any reason, to contain the water.
This is the only example contained in the water exclusion. Contrary to Union Mutual’s assertion that the example is “clearly not intended to limit the scope of the Exclusion,” the trial court found, and the supreme court agreed, that this example would fortify a reasonable insured’s impression that the exclusion is intended to encompass water damage caused by events external to the property, and not water damage resulting from an internal pipe clogged by a tenant’s disposal of cat litter.
Union Mutual responded that “the context in which the term ‘drain’ appears in the Policy does not render the term ambiguous.”
Because it concluded that the exclusion is ambiguous, the court said it must be construed against the insurer. The appellate court affirmed the judgment of the trial court.
CC 145 Main, LLC v. Union Mutual Fire Insurance Company—Supreme Court of New Hampshire—July 20, 2023—No. 2021-0376.
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