Title: Pioneer Towers Owners Association v. State Farm Fire & Casualty Company

State: new-york

Issuer: New York Appellate Court

Document:

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 63  
Pioneer Tower Owners Association,
            Respondent, 
        v. 
State Farm Fire & Casualty 
Company et al., 
            Appellants.
Stuart M. Bodoff, for appellants.
Lawrence A. Kushnick, for respondent.
New York Insurance Association, Inc. et al., amici
curiae.
SMITH, J.:
Plaintiff seeks recovery under an insurance policy for
damage to its building that resulted from an excavation on an
adjacent lot.  We hold that policy exclusions for "earth
movement" and "settling [or] cracking" did not unambiguously
remove this event from the policy's coverage.
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No. 63
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I
Plaintiff is the owner of a condominium apartment
building.  After cracks began appearing in the building, a
structural engineer was called in.  He found a number of cracks,
separations and open joints, and concluded that they were caused
by work that was in progress on the lot next door.  That lot was
being excavated, and underpinning had been built to protect the
foundation of plaintiff's building.  The engineer concluded, and
it is undisputed in this case, that the underpinning was flawed,
and that as a result earth slid away beneath plaintiff's
building, causing damage.  
Plaintiff submitted a claim for the damage to defendant
State Farm Fire & Casualty Company (defendant), which had insured
the building against "accidental direct physical loss." 
Defendant disclaimed coverage, relying on the "earth movement"
exclusion in its policy, which says:
"We do not insure under any coverage for any
loss which would not have occurred in the
absence of one or more of the following
excluded events.  We do not insure for such
loss regardless of: (a) the cause of the
excluded event; or (b) other causes of the
loss; or (c) whether other causes acted
concurrently or in any sequence with the
excluded event to produce the loss.
... 
"b.  earth movement, meaning the sinking,
rising, shifting, expanding or contracting of
earth, all whether combined with water or
not.  Earth movement includes but is not
limited to earthquake, landslide, erosion,
and subsidence but does not include sinkhole
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No. 63
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collapse.
"But if accidental direct physical loss by
fire, explosion other than explosion of a
volcano, theft or building glass breakage
results, we will pay for that resulting
loss."  
Plaintiff brought this action to recover for its loss. 
In litigation, defendant and amici supporting it rely not only on
the earth movement exclusion but on several others, of which we
think only one requires discussion.  That exclusion, the settling
or cracking exclusion, says:
"We do not insure for loss either consisting
of, or directly and immediately caused by,
one or more of the following:
....
"f.  settling, cracking, shrinking, bulging
or expansion.
"But if accidental direct physical loss by
any of the 'Specified Causes of Loss' or by
building glass breakage results, we will pay
for that resulting loss."
None of the "Specified Causes of Loss" -- a 14 item
list, including fire, windstorm and water damage among other
things -- is present in this case.
On cross motions for summary judgment, Supreme Court
ruled in plaintiff's favor on the issue of liability.  After a
stipulation as to the amount of damages, Supreme Court entered
judgment for plaintiff.  The Appellate Division modified the
judgment to add a declaration in plaintiff's favor, and otherwise
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No. 63
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affirmed.  We granted leave to appeal, and now affirm.
II
The law governing the interpretation of exclusionary
clauses in insurance policies is highly favorable to insureds. 
We said in Seaboard Sur. Co. v Gillette Co. (64 NY2d 304 [1984]):
"[W]henever an insurer wishes to exclude
certain coverage from its policy obligations,
it must do so in clear and unmistakable
language.  Any such exclusions or exceptions
from policy coverage must be specific and
clear in order to be enforced.  They are not
to be extended by interpretation or
implication, but are to be accorded a strict
and narrow construction.  Indeed, before an
insurance company is permitted to avoid
policy coverage, it must satisfy the burden
which it bears of establishing that the
exclusions or exemptions apply in the
particular case, and that they are subject to
no other reasonable interpretation."  
(Id. at 311 [citations and internal quotation marks omitted; see
also Cone v Nationwide Mut. Fire Ins. Co., 75 NY2d 747, 749
[1989] [exclusions from coverage "construed strictly against the
insurer"]; Breed v Insurance Co. of N. Am., 46 NY2d 351, 353
[1978] ["ambiguities in an insurance policy are to be construed
against the insurer, particularly when found in an exclusionary
clause"].)  We have enforced policy exclusions only where we
found them to "have a definite and precise meaning, unattended by
danger of misconception ... and concerning which there is no
reasonable basis for a difference of opinion" (Breed, 46 NY2d at
355).
This case is a close one, but we cannot say that the
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No. 63
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event that caused plaintiff's loss was unambiguously excluded
from the coverage of this policy.  
Defendant's argument is, in substance, that the literal
language of the exclusions describes what happened here.  The
earth movement exclusion applies, defendant says, because the
loss was caused by the movement of earth, and specifically by its
"sinking" and "shifting" beneath plaintiff's building.  And the
settling or cracking exclusion applies, in defendant's view,
because the loss consisted of cracking that was directly and
immediately caused by the settling of the building (which was in
turn caused by the excavation).  Indeed, plaintiff's own
engineer's report says "that the left wing of the building ...
had settled ... as evidenced by the cracking and lateral
displacement of the structure." 
Plaintiff argues, however, that a literal reading of
the words does not give the meaning that an ordinary reader would
assign to these exclusionary clauses.  As to the earth movement
exclusion, plaintiff stresses the examples of earth movement
given in the policy -- "earthquake, landslide, erosion and
subsidence."  Plaintiff argues that an excavation -- the
intentional removal of earth by humans -- is a different kind of
event from an earthquake and the other examples given; plaintiff 
suggests that, when specific examples are mentioned, those not
mentioned should be understood to be things of the same kind. 
Indeed, if the drafter of the policy intended to bring excavation
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No. 63
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-- an obvious and common way of moving earth -- within the
exclusion, why was it not listed as an example while less common
events were listed?
Similarly, plaintiff argues that the settling or
cracking exclusion would not be thought, by an ordinary reader,
to apply to settling or cracking that is the immediate and
obvious result of some other event, such as the intentional
removal of earth in the vicinity of the building.  Read
literally, the exclusion would apply, for example, where a
refrigerator fell over and cracked a wall, but that can hardly
have been the intent of the policy's drafters.  
We conclude that both plaintiff's and defendant's
readings of the clauses are reasonable.  Our precedents require
us to adopt the readings that narrow the exclusions, and result
in coverage.  As to the earth movement exclusion, our holding is
also supported by precedent which, though not binding on us, is
directly on point.  Two Appellate Division cases and one federal
district court decision have held that earth movement exclusions
using identical language are not applicable to losses caused by
excavation (Lee v State Farm Fire & Cas. Co., 32 AD3d 902 [2d
Dept 2006]; Burack v Tower Ins. Co. of N.Y., 12 AD3d 167 [1st
Dept 2004]; Wyatt v Northwestern Mut. Ins. Co. of Seattle, 304 F
Supp 781 [D Minn 1969]).  The parties have cited no case, and we
have found none, applying the earth movement exclusion to
intentional earth removal.   
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No. 63
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Accordingly, the order of the Appellate Division should
be affirmed, with costs.
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Order affirmed, with costs.  Opinion by Judge Smith.  Chief Judge
Lippman and Judges Ciparick, Graffeo, Read, Pigott and Jones concur.
Decided April 30, 2009