Alf v. State Farm Fire and Cas. Co.

• Decision Date: 08 April 1993
• Docket Number: No. 900582,900582
• Citation: 850 P.2d 1272
• Parties: Phillip A. ALF and Katherine B. Alf, Plaintiffs and Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, a foreign corporation, Defendant and Appellee.
• Court: Utah Supreme Court

Page 1272

850 P.2d 1272

Phillip A. ALF and Katherine B. Alf, Plaintiffs and Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, a foreign corporation,

Defendant and Appellee.

No. 900582.

Supreme Court of Utah.

April 8, 1993.

Clark B. Fetzer, Patrick S. Hendrickson, Salt Lake City, for plaintiffs and appellants.

Henry E. Heath, Stuart H. Schultz, Salt Lake City, for defendant and appellee.

HALL, Chief Justice:

This case arises out of a breach of contract claim filed by Phillip and Katherine Alf against State Farm Fire and Casualty Company ("State Farm") for failing to honor the all-risk homeowners insurance policy (the "Policy") the Alfs purchased from State Farm. The Alfs appeal from an order granting State Farm's summary judgment motion and thereby denying coverage under the Policy. We affirm.

The facts in this case are not in dispute. On March 8, 1988, the Alfs purchased an all-risk homeowner's insurance policy on their home and premises in Draper, Utah. On or about February 15, 1989, while the Policy was in full force and effect, the main water line to the home froze and burst due to unusually low temperatures. As a result of the rupture, large volumes of water escaped, causing extensive flooding and soil erosion. The water washed away the soil beneath the tennis court, driveway, fences, and other structures on the Alfs' property, causing considerable damage.

The parties do not dispute the fact that the Policy covers repair or replacement of the ruptured pipe. However, State Farm refused to honor the Policy for the damage caused by the rupture, asserting that an exclusion for any loss due to "earth movement" precluded the Alfs from recovering under the Policy. ¹ On October 3, 1989, the Alfs filed suit against State Farm, alleging claims for breach of the insurance contract and breach of the duty of good faith and fair dealing. State Farm responded by moving for summary judgment. The trial court granted State Farm's motion for summary judgment, finding that the Alfs could not recover under the Policy. The trial court based its ruling on Village Inn Apartments v. State Farm Fire & Casualty Co., ² in which the Utah Court of Appeals denied coverage to a policy holder in a remarkably similar fact situation.

The Alfs contend that the trial court erred in concluding that the Policy did not cover their loss as a matter of law. On appeal, the Alfs claim that (1) the Policy is ambiguous and should therefore be construed against State Farm, (2) construing the exclusion against them violates their reasonable expectations of coverage, (3) Village Inn was incorrectly decided and should be overruled, and (4) the "ensuing loss" provision in the Policy covers their loss. We address each issue in turn.

I. STANDARD OF REVIEW

We first note the appropriate standard of review. A trial court should grant summary judgment only when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. ³ Since the parties are in agreement as to the material facts, our review is limited to determining "whether the trial court erred in applying the governing law." ⁴ In deciding whether the trial court properly granted judgment as a matter of law, we accord the trial court's legal conclusions no deference but review them for correctness. ⁵

II. AMBIGUITY AND THE REASONABLE EXPECTATIONS DOCTRINE

The Alfs do not allege that any particular term within the Policy is ambiguous on its face. Instead, they claim that the Policy's explicit coverage for broken pipes and the exclusion denying recovery for damage caused by earth movement (which was, in turn, caused by a broken pipe) renders coverage so doubtful and uncertain that the Policy is ambiguous. Further, the Alfs continue, they had a reasonable expectation that damage caused by a covered peril would be compensable under the Policy, regardless of the fact that an uninsured peril entered into the chain of causation.

An insurance policy is merely a contract between the insured and the insurer and is construed pursuant to the same rules applied to ordinary contracts. ⁶ Whether an ambiguity exists in a contract is a question of law. ⁷ If a policy is ambiguous, doubt is resolved against the insurer. ⁸ However, if a policy is not ambiguous, no presumption in favor of the insured arises and the policy language is construed according to its usual and ordinary meaning. ⁹

A contract may be ambiguous because it is unclear or omits terms ¹⁰ or, as the Utah Court of Appeals has stated, "if the terms used to express the intention of the parties may be understood to have two or more plausible meanings." ¹¹ However, policy terms are not necessarily ambiguous simply because one party seeks to endow them with a different interpretation according to his or her own interests. ¹²

Here, the alleged ambiguity is not the result of unclear language. Instead, the Alfs claim that the exclusion is inconsistent with the expected coverage and that the inconsistency creates an ambiguity in the policy. However, this logic would prevent application of any exclusion since exclusions are necessarily inconsistent with coverage. We decline to adopt a new definition of "ambiguous" that would render an exclusion invalid simply because it conflicts with the stated coverage in some way.

An "insurer may exclude from coverage certain losses by using 'language which clearly and unmistakably communicates to the insured the specific circumstances under which the expected coverage will not be provided.' " ¹³ The policy language used here is clearly stated and clearly labeled. It specifically excludes coverage for damage resulting from earth movement, despite the fact that the cause of the earth movement is a covered peril. In general, a court may not rewrite an insurance contract for the parties if the language is clear and unambiguous, ¹⁴ and we cannot do so here.

The Alfs also champion a related argument--that the inconsistent Policy language violates their reasonable expectations of coverage. "In general, the reasonable expectations doctrine authorizes a court confronted with an adhesion contract to enforce the reasonable expectations of the parties under certain circumstances." ¹⁵

However, this court recently addressed the validity of the reasonable expectations doctrine in Allen v. Prudential Property & Casualty Insurance Co. ¹⁶ and declined to adopt it as the law in Utah. We reasoned that existing equitable and tort remedies, when applied on a case by case basis, are adequate to protect against overreaching insurers. ¹⁷ Hence, our decision in Allen is dispositive of the Alfs' reasonable expectations claim.

III. VILLAGE INN AND THE EFFICIENT PROXIMATE CAUSE DOCTRINE

In its findings of fact and conclusions of law supporting summary judgment, the trial court stated:

1. The Court finds that the case of Village Inn Apartments v. State Farm Fire and Casualty Company, 131 Utah Adv.Rep. 9, is governing and there is no coverage for the Plaintiffs' losses and Defendant is entitled to judgment as a matter of Law.

The Alfs claim that the trial court's reliance on the Village Inn ¹⁸ decision was misguided because that case was incorrectly decided. According to the Alfs, the reasoning in Village Inn is flawed because it relied primarily on State Farm Fire & Casualty Co. v. Martin, ¹⁹ a case whose application has been severely limited by subsequent decisions in California state courts.

Village Inn presents a fact situation almost identical to the case at hand. In Village Inn, an underground water pipe burst on the premises of the Village Inn apartments in Cedar City, Utah. The escaping water saturated the soil beneath the apartments, causing the foundation to sink almost eight inches. Repair costs reached $70,000. ²⁰ State Farm denied coverage under a clause in the policy excluding coverage for damage caused, either directly or indirectly, by earth movement. ²¹ The trial court in Village Inn found that the damage was caused by earth movement, and because the policy excluded loss from such movement regardless of the underlying cause, it granted summary judgment for State Farm. ²²

On appeal, Village Inn argued that "earth movement" should refer only to natural phenomena or, alternatively, that the phrase was undefined and ambiguous and should be construed against the insurer. ²³ The court of appeals examined the language of the policy as a whole and determined that the lead-in clause precluded coverage:

This "lead-in" clause, apparently a relatively recent addition by State Farm to its policies, clearly excludes from coverage any loss from earth movement, combined with water, regardless of the cause. See, e.g., State Farm Fire & Cas. Co. v. Martin, 668 F.Supp. 1379, 1382 (C.D.Cal.1987), aff'd 872 F.2d 319 (9th Cir.1989). Since the exclusion is for earth movement loss from any cause, we can only conclude earth movement encompasses both natural and human processes. In view of the lead-in language, we hold that the district court was correct in its interpretation that the policy was unambiguous and excluded coverage. ²⁴

Hence, because the earth movement clause was unambiguous, the court of appeals affirmed the decision of the court below.

The Alfs claim that the court of appeals' citation to the subsequently discredited Martin case in the above-quoted language renders the Village Inn decision suspect and that we should not follow it. We first note that Village Inn cited to Martin only once and used the introductory signal "see, e.g." in doing so. That signal indicates that the case cited clearly supports the proposition although the proposition is not directly stated in the cited authority and that "other authorities also state the proposition, but citation to them would not be helpful or is not necessary." ²⁵ Thus, the court of appeals in Village Inn cited Martin only as a case supporting the conclusion it reached independently.

We next turn to the Martin case itself. In that...