Barking Dog, Ltd. v. Citizens Ins. Co. of Am.

• Decision Date: 17 August 2012
• Docket Number: No. 2011–693.,2011–693.
• Citation: 164 N.H. 80,53 A.3d 554
• Parties: The BARKING DOG, LTD. v. CITIZENS INSURANCE COMPANY OF AMERICA.
• Court: New Hampshire Supreme Court

164 N.H. 80

53 A.3d 554

The BARKING DOG, LTD.

v.CITIZENS INSURANCE COMPANY OF AMERICA.

No. 2011–693.

Supreme Court of New Hampshire.

Argued: April 11, 2012.

Opinion Issued: Aug. 17, 2012.

Hoefle, Phoenix, Gormley & Roberts, P.A., of Portsmouth (Lawrence B. Gormley on the brief and orally), for the plaintiff.

Robinson & Cole LLP, of Boston, Massachusetts (Caryn L. Daum on the brief and orally), for the defendant.

CONBOY, J.

In this declaratory judgment proceeding, the defendant, Citizens Insurance Company of America, appeals an order of the Superior Court (McHugh, J.) ruling in favor of the plaintiff, The Barking Dog, Ltd., which operates a dog kennel and grooming business at several locations in New Hampshire. The court ruled that an insurance policy (the policy) issued by the defendant provides coverage for damage to the plaintiff's septic system and ordered the defendant to pay the plaintiff $20,000, the agreed upon damage amount. The court also ruled that the defendant was not prejudiced by the plaintiff's failure to disclose its expert's report in a timely manner or its failure to disclose its expert's curriculum vitae and, accordingly, permitted the plaintiff's expert to testify at trial. The defendant argues that both rulings were error. We affirm.

The following facts are derived from the record. On February 25, 2010, after a heavy rainfall, the septic system at the plaintiff's Derry facility failed. The plaintiff made a claim under the policy, but the defendant denied it, relying on certain policy exclusions. On June 23, 2010, the plaintiff petitioned the superior court for a declaration that it is entitled to coverage.

It is undisputed that the septic system failed due to the failure of the pump portion of the system. Both parties retained experts to determine the precise cause of the pump failure. The trial court noted that "their general conclusions were quite similar" and "[t]his is not a case where the two experts were 180 degrees apart in their assessment of this loss." Ultimately, the court adopted the plaintiff's expert's theory that "the significant and highly unusual amount of rainfall on the day in question coupled with the existing melting of snow, created such a serious groundwater condition so as to cause the cement risers surrounding the pump chamber to move, thereby allowing water and other materials to enter the chamber itself and cause its failure."

The plaintiff argued that it is entitled to coverage under the policy's "Broad Form Water Damage" (BFWD) provision, which was added to the policy through a "Special Broadening Endorsement" that "amend[ed] coverage provided under the [policy] through new coverages and broader coverage grants." The BFWD provision first deletes two of the policy's so-called "water exclusions," which exclude coverage for damage caused by:

Water that backs up or overflows from a sewer, drain or sump; or

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.

The BFWD provision then adds, to the "Additional Coverages" section of the policy, coverage for damage described in language identical to those water exclusions. Thus, absent the BFWD provision, such damage would be excluded from coverage. The plaintiff's specific argument is that it is entitled to coverage under the BFWD provision because "[t]he cause of the damage [to the pump chamber] was groundwater."

The defendant acknowledged that the BFWD provision provides coverage for some damage that would otherwise not be covered. However, the section to which the BFWD provision was added specifically states that "[a]ll policy Exclusions ... apply." Accordingly, the defendant maintained that the damage at issue is barred by another of the policy's water exclusions that was unaffected by the BFWD provision, as well as by an "earth movement exclusion." The water exclusion relied upon by the defendant excludes coverage for damage caused by "[f]lood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not." The earth movement exclusion excludes coverage for damage caused by:

Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.

The plaintiff argued, however, that these exclusions are inapplicable because the BFWD provision added by the special endorsement supersedes them. The defendant responded that the special endorsement did not alter or modify these water or earth movement exclusions.

In a declaratory judgment proceeding to determine the coverage of an insurance policy, the burden of proof is on the insurer. Carter v. Concord Gen. Mut. Ins. Co., 155 N.H. 515, 517, 924 A.2d 411 (2007) ; RSA 491:22–a (2010). After considering the experts' testimony and the policy provisions, the court concluded that "given the cause of this loss, the policy provisions are ambiguous." It explained that "any ambiguity in insurance policies inures to the benefit of the policy holder," and thus ruled that the loss is covered under the policy. This appeal followed.

Resolution of this case requires us to interpret the language of the policy, which is a question of law that we review de novo. See Webster v. Acadia Ins. Co., 156 N.H. 317, 319, 934 A.2d 567 (2007). "We construe the language as would a reasonable person in the position of the insured based upon a more than casual reading of the policy as a whole." Id. at 319–20, 934 A.2d 567. "Policy terms are construed objectively; where the terms are clear and unambiguous, we accord the language its natural and ordinary meaning." Id. at 320, 934 A.2d 567. "Absent a statutory provision or public policy to the contrary, an insurance company is free to limit its liability through an exclusion written in clear and unambiguous policy language." Philbrick v. Liberty Mut. Fire Ins. Co., 156 N.H. 389, 391, 934 A.2d 582 (2007). However, for exclusionary language to be considered clear and unambiguous, two parties cannot reasonably disagree about its meaning. Id. Thus, when an insurance policy's language is ambiguous and one reasonable interpretation favors coverage, we construe the policy in the insured's favor and against the insurer. Progressive N. Ins. Co. v. Argonaut Ins. Co., 161 N.H. 778, 781, 20 A.3d 977 (2011).

We must first determine whether the damage falls within an area of coverage. See S. Plitt et al., Couch on Insurance 3d § 22:2, at 22–6 (2010) ( "Generally, the insuring agreement of an insurance policy should be construed before the exclusions to avoid confusion and error."). We therefore examine the cause of the damage to determine whether it falls within the coverage granted by the BFWD provision in the first instance.

The trial court adopted the plaintiff's expert's damage theory. The plaintiff's expert testified that the pump chamber is a concrete box containing the pump. He explained that there were high groundwater conditions on the day in question, and, as a result, the groundwater surrounding the pump chamber created an uplifting pressure called "buoyancy force." That force exerted pressure on the bottom and sides of the pump chamber, which caused the chamber to float. In turn, concrete risers sitting atop the chamber shifted, allowing groundwater and soil to infiltrate the chamber, thereby causing the pump to fail.

The BFWD provision grants, in relevant part, coverage for damage caused by "[w]ater under the ground surface pressing on, or flowing or seeping through ... [f]oundations, walls, floor[s] or paved surfaces." Given the expert testimony submitted by the plaintiff, the damage falls within the scope of this coverage—the damage was caused by "water under the ground" pressing on the walls and floor of the pump chamber, a concrete box. The defendant contends that the terms "walls" and "floor" cannot be applied to the pump chamber because both terms "can ... only reasonably be construed as applying to parts of a building, not parts of a subterranean septic system." We decline to adhere to such a narrow construction of these terms.

Although "walls" and "floors" are typically associated with buildings, we see no reason why one would not refer to the bottom of a box as its floor and the sides perpendicular thereto as its walls. These terms offer a simple, easily-understood description of the orientation of the surfaces of a box and, thus, using these terms for such a descriptive purpose is consistent with their "natural and ordinary meaning." Webster, 156 N.H. at 320, 934 A.2d 567. Accordingly, in the first instance, the damages at issue fall within the BFWD coverage provision.

Next, we consider the exclusions. On appeal, the defendant relies only upon the earth movement exclusion, and we thus confine our analysis to that exclusion. The earth movement exclusion, in relevant part, excludes coverage for damage caused by the following:

[S]oil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.

(Emphases added.) This exclusion arguably applies here. The damage to the pump chamber was caused by "water under the ground surface" and...