Fayad v. Clarendon Nat. Ins. Co.

• Decision Date: 31 March 2005
• Docket Number: No. SC03-1808.,SC03-1808.
• Citation: 899 So.2d 1082
• Parties: Carlos FAYAD, et ux., Petitioners, v. CLARENDON NATIONAL INSURANCE COMPANY, Respondent.
• Court: Florida Supreme Court

899 So.2d 1082

Carlos FAYAD, et ux., Petitioners, v. CLARENDON NATIONAL INSURANCE COMPANY, Respondent.

No. SC03-1808.

Supreme Court of Florida.

March 31, 2005.

Harold B. Klite Truppman and Lauri Waldman Ross, Miami, FL, for Petitioner.

Guy E.E. Burnette, Jr., and Marc Peoples of Guy E. Burnette, Jr., P.A., Tallahassee, FL, for Respondent.

William F. Merlin, Jr. and Mary E. Kestenbaum of Gunn Merlin, P.A., Tampa, FL on behalf of United Policyholders, for Amicus Curiae.

PARIENTE, C.J.

We have for review Fayad v. Clarendon National Insurance Co., 857 So.2d 293 (Fla. 3d DCA 2003), which expressly and directly conflicts with Phoenix Insurance Co. v. Branch, 234 So.2d 396 (Fla. 4th DCA 1970).¹ The issue before this Court is whether damages caused by blasting are covered under an all-risk insurance policy that expressly excludes damage caused by earth movement from coverage. As with any other matter involving exclusionary clauses in insurance policies, our decision is governed by the language of the exclusionary provision and well-established principles of insurance contract interpretation. We interpret Clarendon's earth movement exclusion to be limited to earth movement caused by natural events. We conclude that damage caused by a manmade event such as blasting is covered under Clarendon's all-risk insurance policy and does not fall within the earth movement exclusion.

I. FACTS AND PROCEDURAL HISTORY

Clarendon insured the home and certain personal property of Carlos and Dora Fayad (the Fayads) through an all-risk insurance policy. While the policy was in effect, the Fayads reported to Clarendon that nearby blasting activities caused structural damage to their home and personal property. Clarendon initially denied coverage in reliance on its exclusion that barred coverage for damage caused by "settlement, shrinkage and thermal effects." Clarendon also based its denial on a finding by its engineering expert that blasting could not have created vibrations strong enough to cause the claimed loss to the Fayads' home and personal property. Clarendon filed suit seeking a declaratory judgment that there was no coverage for the Fayads' damages. Subsequently, Clarendon moved for summary judgment but only on the earth movement exclusion in its policy. See Fayad, 857 So.2d at 295. Clarendon assumed for the purposes of summary judgment that the Fayads' damages were caused by blasting. The relevant parts of Clarendon's policy read as follows:

SECTION I—EXCLUSIONS

1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

. . . .

b. Earth Movement, meaning earthquake, including land shock waves or tremors before, during or after a volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, rising or shifting; unless direct loss by:

(1) Fire; or

(2) Explosion . . .

ensues and then we will pay only for the ensuing loss.

. . . .

COVERAGE C—PERSONAL PROPERTY

We insure for direct physical loss to the property described in Coverage C caused by a peril listed below unless the loss is excluded in SECTION I—EXCLUSIONS.

. . . .

3. Explosion.

At the hearing on the summary judgment motion, Clarendon relied on State Farm Fire & Casualty Co. v. Castillo, 829 So.2d 242 (Fla. 3d DCA 2002), in which the Third District Court of Appeal held that the language of a lead-in provision and exclusion in a policy drafted by a different insurer excluded coverage for any loss resulting from earth movement regardless of its cause. Based on the Third District's holding in Castillo, the trial court entered summary judgment in favor of Clarendon, finding that coverage was precluded under the earth movement exclusion in Clarendon's policy. On appeal, the Fayads argued that the trial court erred in granting summary judgment because the policy at issue in Castillo contained language in its earth movement exclusion that was materially different from the language in Clarendon's earth movement exclusion. Although the Third District agreed that the exclusion at issue in Castillo was much broader than Clarendon's exclusion, it concluded as a matter of law that "under the plain language of Clarendon's earth movement exclusion provision, there is no coverage for the claimed losses in this case." Fayad, 857 So.2d at 295-96.

The Fayads sought review in this Court, alleging express and direct conflict with Phoenix, in which the Fourth District Court of Appeal, interpreting an earth movement exclusion that was broader than Clarendon's exclusion, concluded that the exclusion was limited to natural events and thus did not exclude damage resulting from blasting activities from coverage. We accepted review to resolve this conflict.

II. ANALYSIS

A. Standard of Review

The specific issue we confront is whether the exclusionary clause in this case, which expressly excludes damage resulting from natural disasters such as earthquakes from coverage, also excludes damage from man-made events such as blasting from coverage. Although the question of whether the damage to the Fayads' home was caused by blasting is a question of fact, whether damage caused by blasting comes within the scope of the exclusionary clause is a question of law. Cf. Dimmitt Chevrolet, Inc. v. Southeastern Fidelity Ins. Corp., 636 So.2d 700, 701 (Fla.1993) (the issue of whether an exclusionary clause precludes coverage for damages is a question of law); Jones v. Utica Mut. Ins. Co., 463 So.2d 1153, 1157 (Fla. 1985) ("[T]he construction of an insurance policy is a question of law. . . ."). Thus, we review de novo the Third District's determination that damage from blasting is excluded under the Fayads' all-risk insurance policy. Cf. City of Gainesville v. State, 863 So.2d 138, 143 (Fla.2003) (trial court's conclusions of law are reviewed de novo); Panama City Beach Cmty. Redevelopment Agency v. State, 831 So.2d 662, 665 (Fla.2002) ("It is clear that this Court's review of the trial court's conclusions of law is de novo.").

Also, de novo review is appropriate because the coverage question was resolved against the Fayads on summary judgment. See Major League Baseball v. Morsani, 790 So.2d 1071, 1074 (Fla.2001) ("The standard of review governing a trial court's ruling on a motion for summary judgment posing a pure question of law is de novo."); Volusia County v. Aberdeen at Ormond Beach, L.P., 760 So.2d 126, 130 (Fla.2000) (stating that a grant of summary judgment is reviewable de novo, and that summary judgment is proper if there is no genuine issue of material fact and if the moving party is entitled to judgment as a matter of law).

B. All-Risk Insurance Policies and Earth Movement Exclusions

The specific type of insurance policy involved in this case is, as in Castillo and Phoenix, an all-risk policy. Unless the policy expressly excludes the loss from coverage, this type of policy provides coverage for all fortuitous loss or damage other than that resulting from willful misconduct or fraudulent acts. See Sun Ins. Office, Ltd. v. Clay, 133 So.2d 735, 739 (Fla.1961); Wallach v. Rosenberg, 527 So.2d 1386, 1388 (Fla. 3d DCA 1988) (quoting Phoenix, 234 So.2d at 398); Jane Massey Draper, Annotation, Coverage Under All-Risk Insurance, 30 A.L.R. 5th 170, 170 (2004). Although the term "all-risk" is afforded a broad, comprehensive meaning, see Wallach, 527 So.2d at 1388, an "all-risk" policy is not an "all loss" policy, and thus does not extend coverage for every conceivable loss.

In deciding whether an all-risk policy excludes coverage for an insured's claimed damages, we are guided by well-established principles of insurance contract interpretation. We begin with the guiding principle that insurance contracts are construed in accordance with "the plain language of the polic[y] as bargained for by the parties." Auto-Owners Ins. Co. v. Anderson, 756 So.2d 29, 33 (Fla.2000) (quoting Prudential Prop. & Cas. Ins. Co. v. Swindal, 622 So.2d 467, 470 (Fla.1993)) (alteration in original). However, if the salient policy language is susceptible to two reasonable interpretations, one providing coverage and the other excluding coverage, the policy is considered ambiguous. See Anderson, 756 So.2d at 34; Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So.2d 161, 165 (Fla.2003). Ambiguous coverage provisions are construed strictly against the insurer that drafted the policy and liberally in favor of the insured. See Anderson, 756 So.2d at 34; State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So.2d 1072, 1076 (Fla.1998); Deni Assocs. of Florida, Inc. v. State Farm Fire & Cas. Ins. Co., 711 So.2d 1135, 1138 (Fla.1998). Further, ambiguous "exclusionary clauses are construed even more strictly against the insurer than coverage clauses." Anderson, 756 So.2d at 34; see also Demshar v. AAACon Auto Transport, Inc., 337 So.2d 963, 965 (Fla.1976) ("Exclusionary clauses in liability insurance policies are always strictly construed."). Thus, the insurer is held responsible for clearly setting forth what damages are excluded from coverage under the terms of the policy.

With regard to earth movement exclusions, there is a distinction between losses caused by natural events, which are often cataclysmic and widespread, and losses caused by man-made events. When losses are caused by human activity, insurers have the opportunity to recover some of the payments made to their insured by asserting subrogation rights against the entity responsible for the activity. See generally Cas. Indem. Exchange v. Penrod Bros., Inc., 632 So.2d 1046, 1047 (Fla. 3d DCA 1993) ("After payment of a loss to its insured, an insurer may be subrogated to `any right of action that the insured may have against the third person whose negligence or wrongful act caused the loss.'") (quoting Indiana Ins. Co. v. Collins, 359 So.2d 916, 917 (Fla. 3d DCA 1978)); Fireman's Fund Ins. Co. v. Rojas, 409 So.2d 1166,...