Mellin v. N. Sec. Ins. Co.

Decision Date24 April 2015
Docket NumberNo. 2014–020,2014–020
Citation167 N.H. 544,115 A.3d 799
CourtNew Hampshire Supreme Court

Drummond Woodsum & MacMahon, of Portsmouth (Keriann Roman on the brief and orally), for the plaintiffs.

Primmer Piper Eggleston & Cramer PC, of Manchester (Gary M. Burt on the brief and orally), for the defendant.


The plaintiffs, Doug and Gayle Mellin, brought a declaratory judgment action asserting, in relevant part, that their homeowner's insurance policy with the defendant, Northern Security Insurance Company, Inc. (Northern), requires Northern to reimburse them for losses to their condominium caused by cat urine odor. The plaintiffs appeal an order of the Superior Court (Wageling , J.) granting summary judgment in favor of Northern. We vacate in part, reverse in part, and remand.

I. Background

The record on summary judgment supports the following facts or they are otherwise undisputed. The plaintiffs owned a condominium unit in Epping (unit). Their downstairs neighbor kept two cats in her condominium. The plaintiffs leased their unit to a tenant who was the first person to detect a cat urine odor in the unit in 2009 or 2010. In November 2010, after their tenant moved out due to the odor, the plaintiffs moved into the unit and also noticed the odor. They surmised that it entered their unit from the downstairs condominium through an open plumbing chase servicing the kitchen. In December 2010, the plaintiffs filed a claim under their homeowner's insurance policy, which was denied.

Epping's building/health inspector examined the unit and, on December 22, 2010, sent a letter to the plaintiffs stating that they "have a health problem existing" and the odor "is such that [they] need to move out of[ ] the apartment temporarily and have a company terminate the odor." Remediation proved unsuccessful. The plaintiffs continued to reside in the unit until February 1, 2011. They claimed that, after that time, they "could [not] have tenants," although they occasionally occupied the unit. Ultimately, they sold their condominium. They assert, however, that the sale price for the unit was significantly less than that for a comparable condominium in the area which was unaffected by cat urine odor.

Section I of the plaintiffs' homeowner's insurance policy, addressing property coverages, contains two disputed coverage provisions. The first disputed provision, "Coverage A," provides coverage, in relevant part, for "alterations, appliances, fixtures and improvements which are part of the building contained within the ‘residence premises’ " and, through an endorsement, "insure[s] against risk of direct loss to property ... if that loss is a physical loss to property " (Coverage A endorsement). (Emphasis added.) The Coverage A endorsement also contains what is commonly referred to as a "pollution exclusion clause," which states, in part: "We do not insure, however, for loss ... [c]aused by ... [d]ischarge, dispersal, seepage, migration, release or escape of pollutants...." The second disputed provision in Section I, "Coverage D," provides coverage for "Loss Of Use" of the "residence premises," including additional living expenses and lost rental income.

In their petition, the plaintiffs sought a declaration that they are entitled to coverage because they "experienced a direct physical loss" to the unit as a result of the cat urine odor. Northern moved for summary judgment, arguing that the alleged cat urine odor "does not constitute a physical loss" within the meaning of Coverage A and that the pollution exclusion clause "specifically bars recovery." Northern also argued that Coverage D did not apply because the alleged cat urine odor was not caused by any of the enumerated perils against which the policy insured. The trial court agreed with Northern and granted its motion. This appeal followed.

II. Standard of Review

"We review de novo the trial court's application of the law to the facts in its summary judgment ruling." Amica Mut. Ins. Co. v. Mutrie, 167 N.H. 108, 111, 105 A.3d 595 (2014) (quotation omitted). "We consider the affidavits and other evidence, and all inferences properly drawn from them, in the light most favorable to the non-moving party." Id. (quotation and brackets omitted). "If our review of the evidence does not reveal a genuine issue of material fact, and if the moving party is entitled to judgment as a matter of law, we will affirm the trial court's decision." Id. (quotation omitted).

Resolving the issues in this case requires us to interpret the language of the policy. The interpretation of insurance policy language, like any contract language, is ultimately an issue of law for this court to decide. Id. "Policy terms are construed objectively; where the terms are clear and unambiguous, we accord the language its natural and ordinary meaning." Barking Dog v. Citizens Ins. Co. of America, 164 N.H. 80, 83, 53 A.3d 554 (2012) (quotation omitted). "Where disputed terms are not defined in the policy, we construe them in context, and in the light of what a more than casual reading of the policy would reveal to an ordinarily intelligent insured." Great Am. Dining v. Philadelphia Indem. Ins. Co., 164 N.H. 612, 625, 62 A.3d 843 (2013) (quotation omitted). "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." Barking Dog, 164 N.H. at 83–84, 53 A.3d 554 (quotation omitted). "However, for exclusionary language to be considered clear and unambiguous, two parties cannot reasonably disagree about its meaning." Id. at 84, 53 A.3d 554. "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." Id. "In a declaratory judgment action to determine the coverage of an insurance policy, the burden of proof is always on the insurer, regardless of which party brings the petition." Cogswell Farm Condo. Ass'n v. Tower Group, Inc., 167 N.H. ––––, ––––, 110 A.3d 822 (2015); see RSA 491:22–a (2010).

III. Coverage A

The plaintiffs argue that the trial court erred by concluding that they were not entitled to coverage under the Coverage A endorsement because they did not suffer a "physical loss" to the property. They further contend that the trial court erred by finding that the pollution exclusion clause in the Coverage A endorsement independently precluded coverage.

A. Physical Loss Under Coverage A Endorsement

The Coverage A endorsement states: "We insure against risk of direct loss to property described in Coverage A, only if that loss is a physical loss to property." (Emphasis added.) The plaintiffs argue that they are entitled to coverage under this endorsement because "physical loss" encompasses pervasive odors.

Northern first argues that the plaintiffs' objection to the motion for summary judgment did not satisfy the statutory requirements for opposing summary judgment. See RSA 491:8–a, IV (2010) (requiring party opposing summary judgment to "set forth specific facts showing that there is a genuine issue for trial"); see also RSA 491:8–a, III (2010) (setting forth requirements for granting summary judgment). However, because Northern has not demonstrated that it raised this issue before the trial court, we decline to address it. Mutrie, 167 N.H. at 114, 105 A.3d 595.

Northern next contends that, although "the words ‘direct’ and ‘physical loss’ are undefined" in the Coverage A endorsement, "they are commonly understood to require tangible change to the property," and that the alleged cat urine odor did not constitute a physical loss under the plain meaning of the policy because it "did not cause[ ] a tangible alteration to the appearance, color, or shape" of the unit. Because, as Northern notes, the policy does not define the term "physical loss," we give the words their ordinary meaning. See Pawtucket Mut. Ins. Co. v. Hartford Ins. Co., 147 N.H. 369, 372, 787 A.2d 870 (2001). The disputed term is "physical," which is broadly defined and refers, in relevant part, to things "[o]f or pertaining to matter, or the world as perceived by the senses; material as [opposed] to mental or spiritual." 2 Shorter Oxford English Dictionary 2194 (6th ed. 2007). We are not persuaded that the common understanding of the word "physical" requires the restricted reading Northern proposes. Rather, we conclude that "physical loss" need not be read to include only tangible changes to the property that can be seen or touched, but can also encompass changes that are perceived by the sense of smell.

We recognize that some jurisdictions have adopted a more limited interpretation of "physical loss." See, e.g., Universal Image Productions, Inc. v. Chubb Corp., 703 F.Supp.2d 705, 709, 710 (E.D.Mich.2010) (concluding that allegations of what court deemed to be intangible harms, such as pervasive odor, mold and bacterial contamination, and water damage, did not constitute physical loss), aff'd sub nom. Universal Image Prod. v. Federal Ins. Co., 475 Fed.Appx. 569 (6th Cir.2012) ; Great Northern Ins. v. Benjamin Franklin Fed. S & L, 793 F.Supp. 259, 263 (D.Or.1990) (finding no " ‘direct physical loss’ " from discovery of asbestos insulating material because building "remained physically intact and undamaged"), aff'd , 953 F.2d 1387 (9th Cir.1992). However, our interpretation that "physical loss" encompasses changes to the insured property perceived by the sense of smell is supported by a substantial body of case law in which a variety of contaminating conditions, including odors, have been held to constitute a physical loss to property. See Yale University v. Cigna Ins. Co., 224 F.Supp.2d 402, 412–13 (D.Conn.2002) (citing cases and concluding plaintiff sustained its burden of demonstrating that it suffered " ‘physical loss of or...

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