Union Street Furniture and Carpet, Inc. v. Peerless Indemnity Insurance Company et al. (2013)

MEMORANDUM OF DECISION

I. Background

The plaintiff brings this action for breach of contract ¹ to recover damages alleging that the defendant failed to pay the plaintiff amounts due the plaintiff under an insurance policy issued by the defendant covering the plaintiff for loss and damages suffered by the plaintiff according to the terms of the policy.   The case was tried to the court on April 10 and April 11, 2013.

II. Facts

The plaintiff owned and operated a business that sold various flooring materials including carpet, wood flooring and ceramic tile.   A significant portion of its inventory was carpeting.   The plaintiff purchased an insurance policy from the defendant covering the time period from May 2, 2007 until May 2, 2008.   The plaintiff operates its business and leased space in multi-tenanted building.   The building had a flat roof that had aged and had been patched on multiple occasions.   The roof had several roof drain down spouts.   The down spouts were designed to allow water to flow off the roof and drain into the parking lot and areas around the outside of the building.   The roof had experienced leaks in the past.   The elevation of the floor of the leased premises was below the elevation of the adjacent parking lot.   There was also a loading dock that serviced the premises.

On October 11, 2007 there occurred a severe and heavy rain storm in the vicinity of the plaintiff's business.   Rain collected on the roof and began leaking into the plaintiff's premises.   The leaks were significant and occurred in approximately 9 to 15 separate locations.   Water also flowed into the premises through the area adjacent to the loading dock as well as through the front doorway.   So much water flowed into the premises from the loading dock and the front doorway that the entire floor of the premises was covered with water at depths ranging from 15 to 22 inches.

The plaintiff had a significant amount of inventory, displays and other business material in the premises.   Much of the inventory was carpet rolls that were stored on the floor.   There were also racks in which carpet and wood flooring was stored and displays in which carpet was hung.   Some of these racks and displays were at a height such that the inventory was above the elevation of the water on the floor;  some were at an elevation such that the inventory was below the level of the water on the floor.   The water on the floor of the premises remained for more than a day or two.

The evidence is not clear how much of the inventory was on racks that were above the height of the water on the floor.   Certainly a significant amount of the inventory that was on racks or on displays was at an elevation where it came in direct contact with the water on the floor.   Because of the quantity of water, weight and the amount of inventory, the plaintiff was unable to move the inventory or otherwise protect it.

Some of the inventory that was above the height of the water on the floor was damaged by water that came in through the roof.   All of the inventory was damaged by water that flowed into the floor from the outside ground surfaces (through the front door and the loading dock).   The inventory that was stacked or hung above the elevation of the water on the floor was damaged as a result of the presence of the water on the floor because the water on the floor created an atmosphere of dampness and mildew.   That mildew and dampness permeated the entire premises and damaged the carpet and other inventory that was stored above the elevation of the water on the floor.

Once the inventory is damaged whether by direct contact with water or by mildew and the presence of dampness it is essentially destroyed.   The plaintiff testified that they could not sell water damaged merchandise to its customers.   The plaintiff's principles testified that their customers simply would not buy it.

As a result all of the inventory was effectively lost.   The premises and leasehold improvements were also damaged.   For example, the sheet rock on the walls had to be removed and replaced from the floor to a height of 4 feet.   (The sheet rock above a height of 4 feet did not need to be replaced.)

As a result of the complete loss of inventory and damage to the premises the plaintiff had to suspend its business operations with a resulting loss of business income.

Prior to the subject incident, in 2004, the plaintiff suffered a water loss from a rain related flood when water flowed into the premises from grade level.   In the 2004 incident no water came in from the roof.   Subsequent to the 2004 loss the plaintiffs at the suggestion of their insurance agent purchased a flood insurance policy from Middle Oak Insurance Company.   The face amount of the flood insurance policy that was in effect on October 11, 2007 was $400,000.   The plaintiff filed a proof of loss with Middle Oak Insurance Company claiming that it had sustained a loss of $580,000 as a result of a “flood.”   Middle Oak paid the full amount of its flood insurance policy of $400,000 to the plaintiffs.

The original proof of loss filed by the plaintiff with the defendant identified the cause and origin of the loss as “rain which backed up drains and water through roof and surface water.”   In May 2013 the plaintiff filed an amended proof of loss that identified the cause and origin of the loss as “rain which leaks through the roof.”

III. The Insurance Policy Provisions

The plaintiff argues that all of these losses are covered by its insurance policy with the defendant.   The defendant claims that the damages are the result of a cause or causes of loss that are excluded from policy coverage.   Any analysis requires the court to begin with the provisions of the policy itself.   Pertinent provisions of the applicable insurance policy include the following:

A.  Coverage. We will pay for direct physical loss of or damage to Covered Property at the premises described in the declaration caused by or resulting from any Covered Cause of Loss.

The primary issue in this case is whether the cause of the subject loss was a “covered cause of loss.”   The policy defines “3. Covered Cause of Loss” as “Risk of direct physical loss unless the loss is (a) excluded in paragraph B.” Paragraph B entitled “Exclusions” states:

We will not pay for loss or damaged 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 ․ g. Water (1) flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, or whether driven by wind or not;  ․ (3) water that backs up or overflows from a sewer, drain or sump, except as provided in the additional coverage, backup of sewers and drains ․

Notably the policy under “Additional coverages—backup of sewers and drains” states:  “we will cover direct loss caused by water:  (1) which backs up through sewers or drains.”   In the text of the policy the coverage for this particular cause of loss is limited to $10,000;  however, the plaintiffs purchased an endorsement which increased this “additional coverage for backup of sewers or drains” to $100,000.   The defendant has paid the $100,000 to the plaintiff pursuant to this endorsement.

IV. Discussion

The plaintiff's position is that a significant part of the damage was caused by the rain water that leaked through the roof and is therefore not excluded by the flood or surface water exclusion.   The defendant claims that the water that leaked in from the roof is either surface water and excluded or in the alternative caused by a backup that caused the roof drains to overflow and therefore is subject to the policy limits of $100,000 for sewer and drain backups, which the defendant has already willingly paid.   The defendant claims that the plaintiff has not proven what damages were caused by the covered loss as opposed to the uncovered loss.   Finally, the defendant claims that the damage to the plaintiff's property, at most was caused by a non covered flood or surface water and covered roof leaks.   The plaintiff claims that the “anti-concurrent clause” of the policy states that losses that are caused by both covered and uncovered causes regardless of sequence are excluded and that therefore the plaintiff cannot prevail.

An insurance policy is to be interpreted by the same general rules that govern the construction of any written contract ․ In accordance with those principles [t]he determinative question is the intent of the parties, that is, what coverage the ․ [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy ․ If the terms of the policy are clear and unambiguous, then the language from which the intention of the parties is to be deduced must be accorded its natural and ordinary meaning ․ In determining whether the terms of an insurance policy are clear and unambiguous, [a] court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity ․ Similarly, any ambiguity in a contract must emanate from the language used the contract rather than from one party's subjective perception of the terms ․ as with contracts generally a provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading ․ Under those circumstances, any ambiguity in the terms of an insurance policy must be construed in favor of the insured because the insurance company drafted the policy ․ This rule of construction may not be applied, however, unless the policy terms are indeed ambiguous.  (Citations omitted;  internal quotation marks omitted.)   Connecticut Medial Insurance Co. v. Kulikowski, 286 Conn. 1, 5–6 (2008).   This rule of construction ․ [also] extends to the exclusion clauses.”   (Internal quotation marks omitted.)  Shilberg Intergrated Metals Corp. v. Continental Casualty Co., 263 Conn. 245, 267 (2003).

Lancia v. State National Insurance Co., 134 Conn.App. 682 (2012).   See also Kelly v. Figueiredo, 223 Conn. 31, 36–37 (1992);  Streitweiser v. Middlesex Mutual Assurance Co., 219 Conn. 371, 375 (1991).   The burden of proving an exclusion to a risk otherwise generally insured against is on the insurer.  O'Brien v. John Hancock Mutual Life, 143 Conn. 25, 29 (1953).

The insurance policy issued by the defendant is generally referred to as an “all risk” policy and the policy covers damages from “direct physical loss or damage” caused by or resulting from any “Covered Cause of Loss.” The loss is covered unless it is excluded by unambiguous language in the policy.

The defendant relies on several key provisions of the policy in asserting the cause of loss is excluded.   The first provision relied upon by the defendant states:  “We will not pay for loss or damage caused directly or indirectly by ․ water.”   The water exclusion is further defined as (1) flood, surface water ․ (3) water that backs up or overflows from a sewer, drain or sump, except as provided in the additional coverage “section.”   The defendant asserts that this exclusion applies to both the water that flowed into the premises from the parking lot and the loading dock and the water that leaked into the roof.   With regard to the water that flowed in from the parking lot and the loading dock the court concludes that it was “surface water” and therefore excluded under the plain meaning of the language of the policy.   Because of the unusually heavy rain the water flowed over the surface of the ground area surrounding the premises and flowed into the premises.   Other courts that have interpreted the meaning of surface water have concluded that:

surface waters are commonly understood to be waters on the surface of the ground, usually created by rain or snow, which are of a casual or vagrant character following no definite course and having no substantial or permanent existence.  Front Row Theater v. American Manufacturers Mutual Insurance Co., 18 F.3d 1343, 1347 (6th cir.1994), quoting Fenmode v. Aetna Casualty & Surety Co., 6 N.W.2d 479, 481 (MI, 1942).

On October 11, 2007 the water was created by rain, had no permanent existence, was not running in a channel and followed no definite course other than to flow to the lowest spot which included the plaintiff's premises.   See also Montanaro v. Nationwide Insurance Co., Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 010380448 (February 27, 2003, Doherty, J.) [34 Conn. L. Rptr. 209].   Even if the court were to find that some of the water at grade backed up or overflowed from storm sewers or drains it is still excluded except as provided in the “additional coverage” section.   In that regard the parties had specifically negotiated an agreement for an increased limit of $100,000 for that type of loss which agreement is set forth in an endorsement to the policy.   The defendant has already paid the maximum policy limits pursuant to this endorsement to the plaintiffs.

The closer question is whether or not the water that entered through the roof is excluded.   The defendant offers two arguments in this regard.   The defendant has provided some case law which stands for the proposition that water which pools or collects on the surface of a roof is by its nature surface water and excluded.  Sherwood v. Real Estate and Insurance Co., 234 So.2d 445 447–48 (1970);  FID Coop. Bank v. Nova Casualty Co., 2012 U.S Dist. Lexis 51313 (2012);  contrary to these holdings is Cochran v. Traders Insurance Co., 606 So.2d 22 (1992).

The defendant had previously made this argument in support of its motion for summary judgment;  which argument was rejected by the court.   Union Street Furniture and Carpet, Inc. v. Peerless Indemnity Insurance Company et al., Docket No. CV 08–5008699 S judicial district of Stamford/Norwalk at Stamford (October 23, 2012, Adams, J.) [54 Conn. L. Rptr. 849].

Additionally, the defendant argues that the evidence supports a finding that the roof water was caused by the roof drains being blocked by the water in the parking lot.   Because the water had nowhere to go at the bottom of the drains by virtue of the elevation of the water on the surface of the parking lot and other surrounding areas the water backed up and overflowed.   The roof water, the defendant argues is therefore excluded by the policy provision which excludes water that backs up or overflows a sewer or a drain.   The plaintiff argues that the plain meaning of drain in this clause is a ground drain and not a roof drain.

While it is an interesting issue it is one that the court need not decide.

The court concludes that any damage that might have been caused by roof leaks if otherwise covered is excluded by what is generally referred to as “anti-concurrent clause.”   The policy provisions immediately under the title of the section on exclusions states:  “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 an sequence to the loss.”  (The second sentence of this provision is generally referred to as the “anti-concurrent clause.”)

While the plaintiff claims that the language is unclear, ambiguous and unconscionable the plaintiff provides no case law or other authority to support its proposition.   First the language on its face is not unclear or ambiguous.   The first sentence says we will not pay for loss or damage caused directly or indirectly by any of the following.   In other words there are certain specified types of losses that the policy does not cover.   This language is clear.   The second sentence essentially acknowledges that situations may arise where a loss or damage has more than one cause.   In such a situation if one of the causes is an excluded cause the insurer will not pay even if one or more of the other causes is a covered cause.   To clarify the policy provisions the sentence continues to the effect that the sequence of multiple causes, i.e., which cause was first, does not matter.

An insurer is entitled to determine by its policy language what risks it will assume and what risks it will not assume.   The defendant in this case chose not to assume the risk of concurrent causes, one of which was excluded and one of which was not.   The language of the policy is clear and unambiguous in this regard.

Numerous courts have considered and applied language similar or identical to the subject policy and have not found the language ambiguous or unconscionable.   See e.g. Front Row Theater, supra at 1347.   After citing an identical clause the court concluded “a court cannot rewrite the contract of the parties.”   The Front Row court determined that, because the plaintiff's loss therein was partially caused by an excluded cause (a flood) and the insurer therein specifically opted out of liability when a flood was a contributing cause of the damage, the loss was not covered.  Id. See also Citizens Property Insurance Corp. v. Manning, 966 So.2d 486 (Fla.App. 1 Dist.2007).

In the case at bar both of the principals of the plaintiff testified that the surface water which flooded the property from the parking lot and the loading dock created a situation where the resulting dampness and mildew damaged all of the inventory and rendered all of the inventory unsaleable.   The court so finds.   Thus, this is not a situation where part of the inventory was damaged by flood or surface water (an excluded loss) and part of the inventory was damaged by roof leaks (arguably not an excluded cause).   Rather the court finds that most of the inventory was damaged by direct contact with the flood or surface water.   However, the remainder of the inventory which was high enough not to come into direct contact with the surface water was still damaged by the surface water by virtue of the damp conditions and mildew caused by the surface water.   Some (but not all) of the remainder property was also damaged by water leaking in from the roof.

Nor does the court find anything unconscionable about the application of these provisions in the case at bar.²  The principals of the plaintiff were experienced businessmen who had suffered prior water losses.   They retained an experienced, independent agent to assist them in acquiring insurance and protect them against loss.   Understanding the limits of the defendant's policy they purchased a separate flood insurance policy from another insurer with a limit of $400,000.   They also negotiated for and obtained an increase in the limit of coverage available for sewer and drain backups from $10,000 to $100,000.   Both policies were paid to the plaintiff up to their maximum limits.   The plaintiff obtained the coverage they asked for and paid for.   They obtained the benefits from those policies but are also limited in their recovery by the express and unambiguous terms of the policy.

The court also finds that any losses or damage to leasehold improvements or business income were likewise caused either entirely by the excluded cause or in substantial part by the excluded cause and are therefore barred by the anti-concurrent cause.

Accordingly, judgment may enter for the defendant.

BY THE COURT

GENUARIO, J.

FOOTNOTES

FN1. Pretrial proceedings have resulted in resolution or disposition of other claims of the plaintiff against the defendant, a co-defendant and a third-party complaint.   What remained for trial was a one-count breach of contract claim..  FN1. Pretrial proceedings have resulted in resolution or disposition of other claims of the plaintiff against the defendant, a co-defendant and a third-party complaint.   What remained for trial was a one-count breach of contract claim.

FN2. The court finds itself in agreement with the comment of Judge Adams in Footnote 1 of his decision on the defendant's Motion for Summary Judgment.  “There might be a case where the injury or damage caused by an excluded event is so minimal in comparison to the damage caused by a covered event, that to enforce such a clause would be inimical to accepted notions of fairness.”   Union Street Furniture and Carpet v. Peerless Indemnity Insurance Company, superior court judicial district of Stamford/Norwalk at Stamford, docket CV 08–50086995 S (October 23, 2012, Adams, J.) [54 Conn. L. Rptr. 849].   The evidence introduced at trial in this case, however, reveals quite the opposite..  FN2. The court finds itself in agreement with the comment of Judge Adams in Footnote 1 of his decision on the defendant's Motion for Summary Judgment.  “There might be a case where the injury or damage caused by an excluded event is so minimal in comparison to the damage caused by a covered event, that to enforce such a clause would be inimical to accepted notions of fairness.”   Union Street Furniture and Carpet v. Peerless Indemnity Insurance Company, superior court judicial district of Stamford/Norwalk at Stamford, docket CV 08–50086995 S (October 23, 2012, Adams, J.) [54 Conn. L. Rptr. 849].   The evidence introduced at trial in this case, however, reveals quite the opposite.

Genuario, Robert L., J.