Kane v. Royal Ins. Co. of America, 87SC341

• Decision Date: 17 January 1989
• Docket Number: No. 87SC341,87SC341
• Citation: 768 P.2d 678
• Parties: Nick KANE; Penny Kane; Nicky's, Ltd., a Colorado corporation; and Fall River Chalet Condominium Association, a Colorado non-profit corporation, Petitioners, v. ROYAL INSURANCE COMPANY OF AMERICA, an Illinois corporation; American and Foreign Insurance Company, a Delaware corporation; and Reliance Insurance Company, a Pennsylvania corporation, Respondents.
• Court: Colorado Supreme Court

Page 678

768 P.2d 678

78 A.L.R.4th 797

Nick KANE; Penny Kane; Nicky's, Ltd., a Colorado corporation; and Fall River Chalet Condominium Association, a Colorado non-profit corporation, Petitioners, v. ROYAL INSURANCE COMPANY OF AMERICA, an Illinois corporation American and Foreign Insurance Company, a Delaware corporation; and Reliance Insurance Company, a Pennsylvania corporation Respondents.

No. 87SC341.

Supreme Court of Colorado En Banc.

Jan. 17, 1989.

Rehearing Denied Feb. 6, 1989.

French & Stone, P.C., Joseph C. French, David M. Haynes, Boulder, for petitioners.

Anstine & Hill, William C. Jolliffe, Arthur H. Anstine, Denver, for Royal Ins. Co. of America and Foreign Ins. Co.

Greengard & Senter, Mark C. Overturf, Denver, for Reliance Ins. Co.

Holland & Hart, Wiley E. Mayne, Curt Krechevsky, Denver, for amicus curiae Adams-Arapahoe Joint School Dist. No. 28-J.

ROVIRA, Justice.

We granted certiorari pursuant to C.A.R. 50 to review an order of the Larimer County District Court which, relying on Bartlett v. Continental Divide Insurance Co., 697 P.2d 412 (Colo.App.1984), held that the damage to petitioners' property was caused by a flood. The trial court then found that the insurance policies issued by the respondents did not provide coverage for the losses claimed by petitioners and granted the respondents' motions for summary judgment.

The issues on which we granted the petition are: (1) Whether the failure of Lawn Lake Dam, causing water to inundate the petitioners' property in Estate Park, can be considered a "flood" and therefore excluded from coverage under the petitioners' "all risk" insurance policy; and (2) Whether the "efficient moving cause" of the damage was the negligence of third parties in allowing the dam to fail, rather than the "flood" itself, so that coverage should not be barred by the flood exclusion.

We answer the first question in the affirmative and the second in the negative. Accordingly, we affirm the judgment of the district court.

I.

On the morning of July 15, 1982, the Lawn Lake Dam in Rocky Mountain National Park failed. The water released by the dam swept downhill into the Fall River. A restaurant, motel, condominium complex, and resort lay in the path of the water. The property was owned by petitioners, Nick and Penny Kane, and leased to petitioners, Fall River Chalet Condominium Association and Nicky's, Ltd. (collectively insureds). The damage to the property was extensive.

Prior to the dam failure, Royal Insurance Company and American and Foreign Insurance Company (Royal) had issued a business comprehensive policy to Nicky's, Ltd. covering all risks of direct physical loss to the property except those specifically excluded. ¹ Likewise, Reliance Insurance Company (Reliance) had issued a special business owners policy to Fall River Chalet Condominium Association covering all risks of direct physical loss subject to specific exclusions in the policy. The policies issued by Royal and Reliance (collectively insurers) are substantially similar.

Insureds filed a claim for their loss, but insurers denied coverage claiming that an exclusionary clause in the policies relieved them of liability. The Reliance policy contained the following exclusion from coverage The Company shall not be liable for

12. caused by, resulting from, contributed to, or aggravated by any of the

(b) flood, surface water, waves, tidal water or tidal waves, overflow of streams or other bodies of water, or spray from any of the foregoing, all whether driven by wind or not.

The policy issued by Royal contained an exclusion with language identical in all material respects.

Insureds then filed a complaint seeking a determination of coverage under the insurance policies and damages. The insurers filed answers in which, relying on the exclusionary clause, they denied coverage. Both insureds and insurers moved for summary judgment. In granting summary judgment for insureds, the trial court held that the "terms 'flood', 'flood waters', or 'surface water' [do] not include a situation of an artificially-impounded or contained body of water that escapes and causes damage." The district court further held that "the 'efficient cause of [insureds'] damages' was the failure of the dam and not a flood as contemplated within the insurance exclusion."

Several months later in Bartlett v. Continental Divide Insurance Co., 697 P.2d 412 (Colo.App.1984), the court of appeals, in construing an almost identical exclusionary clause in a case involving the Lawn Lake Dam failure, held that the property damage was caused by a flood and was thus excluded from coverage under the insurance policy. After the judgment of the court of appeals was affirmed by operation of law because of an equally divided court, Bartlett v. Continental Divide Ins. Co., 730 P.2d 308 (Colo.1986), the insurers renewed their motions for summary judgment. The trial court, concluding that it was bound by the reasoning and decision of the court of appeals, held that the "policies of the [insurers] did not provide coverage to the [insureds] for their losses" and granted the motions.

II.

Insureds argue that there is coverage under the insurance policies because the Lawn Lake Dam failure is not a "flood" as contemplated by the flood exclusion and the term "flood" is ambiguous. Specifically, they assert that since "flood" is not defined in the policy and no distinction is made between naturally and artificially caused floods, it is reasonable for property owners to associate the term with natural events, not artificial disasters. Consequently, the exclusion clauses are ambiguous and should be strictly construed against the insurers. We reject this argument because we believe that the term "flood" is not ambiguous as applied to the facts of this case.

Ambiguous language in insurance contracts should be construed against the insurer. See, e.g., Republic Ins. Co. v. Jernigan, 753 P.2d 229, 232 (Colo.1988); United States Fidelity & Guar. Co. v. First Nat'l Bank, 147 Colo. 446, 450, 364 P.2d 202, 204 (1961). Unambiguous contracts, however, should be enforced according to their terms. See, e.g., Jernigan, 753 P.2d at 232; Griffin v. United Bank, 198 Colo. 239, 242, 599 P.2d 866, 868 (1979).

Mere disagreement between the parties about the meaning of a term does not create ambiguity. Union Rural Elec. Ass'n v. Public Utils. Comm'n, 661 P.2d 247, 251 (Colo.1983). "In ascertaining whether certain provisions of a document are ambiguous, the instrument's language must be examined and construed in harmony with the plain and generally accepted meaning of the words employed, and reference must be made to all the provisions of the agreement." Radiology Professional Corp. v. Trinidad Area Health Ass'n, 195 Colo. 253, 256, 577 P.2d 748, 750 (1978) (citing Christmas v. Cooley, 158 Colo. 297, 406 P.2d 333 (1965); United States Fidelity & Guar. Co. v. First Nat'l Bank, 147 Colo. 446, 364 P.2d 202 (1961); People ex rel. Park Reservoir Co. v. Hinderlider, 98 Colo. 505, 57 P.2d 894 (1936)).

The generally accepted meaning of the term "flood" does not include a distinction between artificial and natural floods. For example, Webster's New World Dictionary 535 (2d ed. 1974), defines "flood" as: "[A]n overflowing of water on an area normally dry; inundation; deluge...." Webster's Ninth New Collegiate Dictionary 474 (9th ed. 1988), defines the term as: "[A] rising and overflowing of a body of water esp[ecially] onto normally dry land...." Black's Law Dictionary (5th ed. 1979), contains a similar definition: "An inundation of water over land not usually covered by it. Water which inundates area of surface of earth where it ordinarily would not be expected to be." The inundation of insureds' normally dry land falls squarely within these generally accepted definitions of the term "flood." ² See Bartlett v. Continental Divide Ins. Co., 697 P.2d 412 (Colo.App.1984) (no distinction in insurance policy between natural and artificial causes of flood; to make such distinction would be to rewrite the terms of the policy).

Insureds argue that Ferndale Development Co. v. Great American Insurance Co., 34 Colo.App. 258, 527 P.2d 939 (1974), requires us to reach a different conclusion. We disagree. In Ferndale, the court of appeals found the term "flood" used in a similarly worded insurance policy exclusion to be ambiguous in a situation where a broken city water line caused the "inundation of the footings and foundations of partially completed condominiums being constructed by the [insured]." Id. at 259, 527 P.2d at 940. As a result, the court construed the term against the insurer, finding that "water escaping from burst water mains" was not a "flood" within the exclusion clause of that policy. Id. at 261, 527 P.2d at 940.

The fact that the water main in Ferndale was a man-made object like the dam in this case does not control our decision. Under the facts of Ferndale, the term "flood" is ambiguous not only because the water was released from a man-made object, but also because a water main is not so clearly a "body of water," see Webster's Ninth New Collegiate Dictionary 474 (9th ed. 1988), and because the amount of water released was less clearly an "inundation" or "deluge," see Webster's New World Dictionary 535 (2d ed. 1974). Cumulatively, the doubts were sufficient in Ferndale for the court to resolve them in favor of the insured.

Here, however, there is no basis for holding that the term "flood" is ambiguous as applied to "the great overflowing of water" caused by the failure of Lawn Lake Dam. That is, when this exclusion is construed in harmony with the generally accepted meaning of the term "flood" and in the context of the facts of this case, there is no doubt that this large-scale inundation of water was a "flood."

In addition to the factual distinction between Ferndale and this case, the definition of "flood waters" upon which the Ferndale court relied supports our conclusion...