Penn-America Ins. Co. v. Mike's Tailoring

Decision Date11 January 2005
Docket NumberNo. C046333.,C046333.
Citation22 Cal.Rptr.3d 918,125 Cal.App.4th 884
CourtCalifornia Court of Appeals Court of Appeals
PartiesPENN-AMERICA INSURANCE COMPANY, Plaintiff and Appellant, v. MIKE'S TAILORING, Defendant and Respondent.

Costa Law Firm, Daniel P. Costa and Paul C. Clauss, Sacramento, for Plaintiff and Appellant.

Shepard & Haven, Sacramento, Stanley R. Parrish and Jennifer J. Schultz, for Defendant and Respondent.

BLEASE, Acting P.J. Plaintiff Penn-America Insurance Company (Penn-America) appeals from an adverse judgment in its declaratory relief action to determine whether the insurance policy it issued to Mike's Tailoring (Mike) covered the loss suffered.

The trial court determined the loss, which occurred when a clogged sewer line running underneath Mike's property caused raw sewage to flow into Mike's basement, was covered by the policy. It concluded the loss was covered under the terms of a policy covering the discharge of pollutants caused by the discharge of water directly resulting from the breaking or cracking of a part of a system containing water. The trial court found the exclusion for damage caused by "[w]ater that backs up from a sewer or drain" was not applicable because it encompassed damage caused by water and did not include pollutants carried by water. We disagree.

We shall conclude the exclusion from coverage for "[w]ater that backs up from a sewer or drain" must be given its common sense interpretation to include the sewage that inevitably accompanies the water in a sewer. We shall reverse the judgment.


Penn-America issued a commercial lines insurance policy to Mike. Under the terms of the policy, Penn-America would pay for physical loss or damage to covered property caused by any "Covered Cause of Loss." The "Covered Causes of Loss" are "RISKS OF DIRECT PHYSICAL LOSS" unless the loss was excluded or limited by the policy.

The policy contains two relevant exclusions from coverage. If either one applies to the cause of loss there is no coverage.1

The first exclusion is the water backup exclusion. It states in relevant part:

"We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss....


"g. Water


"(3) Water that backs up from a sewer or drain...."

The second exclusion is the pollutant exclusion. It states in relevant part:

"We will not pay for loss or damage caused by or resulting from any of the following:


"L. Discharge, dispersal, seepage, migration, release or escape of `pollutants' unless the discharge, dispersal, seepage, migration, release or escape is itself caused by any of the `specified causes of loss.' But if loss or damage by the `specified causes of loss' results, we will pay for the resulting damage caused by the `specified causes of loss.'"

"Specified Causes of Loss" are defined as:

"Fire; lighting; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage. [¶] ... [¶]

"3. Water damage means accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam."

"Pollutant" is defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."

For the purposes of this appeal, we accept the following findings of the trial court. A sewer pipe servicing Mike's premises and that of an adjacent property ran beneath the concrete floor of Mike's basement. The sewer pipe conveyed all waste water from both properties and the water contained, inter alia, grease, vegetable matter, and human excrement. The sewer pipe was connected to a clean-out pipe. The two were joined beneath the basement floor, and the clean-out pipe ascended vertically at an angle until it breached the basement floor of Mike's premises. At the time of the incident, the clean-out pipe was covered with a plastic cap where it exited the basement floor.

Approximately 20 to 25 feet downstream from the plastic cap the sewer pipe had a "discernible brief and abrupt change in direction." The change in direction was "more likely than not the result of a break in the sewer pipe at that point." The break allowed solid matter in the waste water to collect at that point, resulting in a blockage. The blockage constricted the flow of water and sewage, causing it to accumulate upstream from the obstruction.

The pressure of the accumulating water and sewage caused the plastic cap on the clean-out pipe to fail, and the contents of the sewer line were forced up the clean-out pipe into Mike's basement. The water and sewage from the sewer line flooded Mike's basement, and the water, sewage and fumes accompanying the sewage damaged Mike's property.

Based on these findings of fact, the trial court concluded the loss was covered notwithstanding the pollutant exclusion because the loss was one of the "Specified Causes of Loss" in the form of water damage. The trial court determined the downstream break in the sewer pipe and the failure of the clean-out cap constituted accidental breaks in the system causing a discharge of water and pollutants.

The trial court further concluded the water backup exclusion did not apply because it only encompassed damage caused by water, not damage caused by the pollutants carried by water. The trial court granted judgment in Mike's favor on the issues of insurance coverage presented in the complaint.



Review of Insurance Policies

Absent a factual dispute, the interpretation and application of insurance contracts is an issue of law which we review de novo. (Century Transit Systems, Inc. v. American Empire Surplus Lines Insurance Co. (1996) 42 Cal.App.4th 121, 125, 49 Cal.Rptr.2d 567.) Our resolution of this case rests on the interpretation of the contract language "[w]ater that backs up from a sewer or drain," an issue of law.

A contract is to be interpreted so as to give effect to the intent of the parties at the time the contract is formed. (Civ Code, § 1636.) We infer the parties' intent from the written provisions of the contract. (Civ.Code, § 1639.) The written provisions of a contract "are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage...." (Civ.Code, § 1644.)

"Thus, if the meaning a lay person would ascribe to contract language is not ambiguous, we apply that meaning." (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822, 274 Cal.Rptr. 820, 799 P.2d 1253.) "An ambiguity arises only if `... there [is] more than one construction in issue which is semantically permissible ....' [Citation.]" (City of Sacramento v. Public Employees' Retirement System (1994) 22 Cal.App.4th 786, 795, 27 Cal. Rptr.2d 545.) In the case of an insurance policy there must be an "`uncertainty in the application of the policy language to the facts upon which the claim of coverage is predicated.'" (National Auto. & Casualty Ins. Co. v. Contreras (1987) 193 Cal.App.3d 831, 835, 238 Cal.Rptr. 627; citation omitted.) "A claim of ambiguity cannot always be decided from the face of the [language]. It may be latent." (City of Sacramento v. Public Employees' Retirement System, supra, 22 Cal.App.4th at p. 795, 27 Cal.Rptr.2d 545, citation omitted.)

If there is ambiguity in an insurance contract, the ambiguous provision is to be construed in the sense the insurer believed the insured understood the provision at the time the contract was formed. (AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d at p. 822, 274 Cal.Rptr. 820, 799 P.2d 1253.) If this does not resolve the ambiguity, the ambiguous provision is to be resolved against the party who caused the uncertainty. (Ibid.) Ambiguities in an insurance contract are generally to be resolved in favor of coverage. (Ibid.)

We shall conclude the meaning a lay person would ascribe to the phrase, "[w]ater that backs up from a sewer or drain" is not facially ambiguous and the record does not establish a latent ambiguity. Consequently we shall apply a common sense meaning in interpreting the policy.


Sewer Backup Exclusion

a. "Water" v. "Pollutant"

As explained, the trial court found the sewer backup exclusion inapplicable because it found the damage was caused by "pollutants" rather than water. Notwithstanding this determination, the trial court also stated: (1) the loss was "caused by water, waste, and sewage;" (2) the sewer pipe conveyed "waste-water ... and that water contained many pollutants;" (3) the sewer line contained water and sewage, and the contents of the sewer line was forced up the clean-out pipe into Mike's basement and flooded the basement; and (4) the leakage of water constituted a "`specified cause of loss' in the form of `water damage'...."

The phrase "[w]ater that backs up from a sewer or drain" is facially unambiguous. It is unreasonable to assume that water in a sewer will be free from waste, contaminants, and other noxious substances that are commonly referred to as sewage. A lay person reading the policy would assume that a backup of water from a sewer would contain both water and contaminants. No reasonable person would assume that water backing up from a sewer would be pure water. It is also unreasonable to assume the term "sewer," which is facially unqualified, has a latent, technical meaning which limits its application to the public portion of...

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