Phillips Home Builders, Inc. v. Travelers Ins. Co., 350

• Decision Date: 12 June 1997
• Docket Number: No. 350,1996,350
• Citation: 700 A.2d 127
• Parties: PHILLIPS HOME BUILDERS, INC., a Delaware corporation, v. The TRAVELERS INSURANCE COMPANY, a Connecticut corporation, The Travelers Indemnity Company of Illinois, an Illinois corporation, The Travelers Indemnity Company, a Connecticut corporation, The Phoenix Insurance Company, a Connecticut Corporation, The Charter Oak Fire Insurance Company, a Connecticut corporation, The Travelers Indemnity Company of Rhode Island, a Rhode Island corporation, and The Travelers Indemnity Company of America, a Georgia corporation, Defendants Below, Appellees. . Submitted:
• Court: Supreme Court of Delaware

Page 127

700 A.2d 127

PHILLIPS HOME BUILDERS, INC., a Delaware corporation, v. The TRAVELERS INSURANCE COMPANY, a Connecticut corporation The Travelers Indemnity Company of Illinois, an Illinois corporation, The Travelers Indemnity Company, a Connecticut corporation, The Phoenix Insurance Company, a Connecticut Corporation, The Charter Oak Fire Insurance Company, a Connecticut corporation, The Travelers Indemnity Company of Rhode Island, a Rhode Island corporation, and The Travelers Indemnity Company of America, a Georgia corporation Defendants Below, Appellees.

No. 350, 1996.

Supreme Court of Delaware.

Submitted: June 12, 1997.

Decided: Sept. 10, 1997.

Rehearing Denied: Oct. 3, 1997.

Upon appeal from the Superior Court. REVERSED and REMANDED.

Court Below: Superior Court of the State of Delaware in and for New Castle County, C.A. No. 94C-12-076-CV C. Malcolm Cochran, IV (argued) and Jeffrey L. Moyer, of Richards, Layton & Finger, Wilmington, for Appellant.

Armand J. Della Porta, Jr., of Kelly, Jasons, McGuire & Spinelli, Wilmington; Thomas S. Brown (argued), of Hecker Brown Sherry and Johnson, Philadelphia, PA, of counsel, for Appellees.

Before VEASEY, C.J., WALSH, HOLLAND, HARTNETT and BERGER, JJ., constituting the Court en banc.

BERGER, Justice:

This is an insurance coverage case arising out of damages that occurred during the construction of a shopping center. The Superior Court construed the insurance policy and determined that the insured's loss was excluded from coverage. We find the relevant contract language ambiguous. Accordingly, following settled law governing the interpretation of insurance contracts, we apply the principle of contra proferentem and construe the policy provision against the insurer. The Superior Court's decision granting summary judgment to the insurance company is REVERSED and the case is REMANDED for further proceedings consistent with this opinion.

I. Background

Phillips Home Builders, Inc. is a construction company with its principal place of business in Middletown, Delaware. In July 1993, after being awarded a contract to build a mini-mall in New Jersey, Phillips purchased a builder's risk insurance policy from The Travelers Insurance Company. Phillips began construction in August and, in November, it poured a concrete slab that was to serve as the floor in one section of the mini-mall. During the first few months of 1994, Phillips discovered that the concrete slab had settled and cracked. The damaged slab, in turn, damaged walls and studs built on or around the slab. In March 1994, Phillips filed a claim under its Travelers policy. Travelers denied the claim on the ground that Phillips' damages were the result of specifically excluded "causes of loss." Phillips responded by filing this action seeking a declaratory judgment, damages and attorneys fees.

II. Trial Court Decision and Standard of Review

Prior to trial, Phillips filed a motion in limine seeking a ruling as to the proper interpretation of the policy, which provides in relevant part:

A. COVERAGE

We will pay for "loss" to Covered Property from any of the Covered Causes of Loss.

* * * * * *

5. Covered Causes of Loss

Covered Causes of Loss means RISKS OF DIRECT PHYSICAL "LOSS" to Covered Property except those causes of "loss" listed in the Exclusions.

* * * * * *

B. EXCLUSIONS

* * * * * *

3. We will not pay for a "loss" caused by or resulting from any of the following. But if "loss" by a Covered Cause of Loss results, we will pay for that resulting "loss."

* * * * * *

c. Faulty, inadequate or defective:

* * * * * *

(2) Workmanship, repair, construction, renovation, remodeling, grading, compaction;

* * * * * *

e. Settling, cracking, shrinking, bulging or expansion.

Phillips asked the Superior Court to construe the policy as providing coverage where the settling, cracking, etc. (collectively "settling") was caused by a covered cause of loss, such as water seepage. The Superior Court adopted Travelers' interpretation. It ruled that Phillips' losses were caused by settling and not by whatever caused the slab to settle. Since settling is an excluded cause of loss, the trial court ruled that there was no coverage under the Travelers policy.

Summary judgment may be awarded only where there are no genuine issues of material fact in dispute and one of the parties is entitled to judgment as a matter of law. ¹ We review the trial court's decision to grant summary judgment de novo. ² The proper interpretation and construction of an insurance contract, also, is subject to de novo review. ³

III. Discussion

The Superior Court correctly articulated the legal principles governing the interpretation of the Travelers policy. In short, if the relevant contract language is clear and unambiguous, courts must give the language its plain meaning. ⁴ If there is an ambiguity, however, the contract language is "construed most strongly against the insurance company that drafted it." ⁵ Thus, a frequently dispositive issue is whether the language is ambiguous. The settled test for ambiguity is whether "the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings." ⁶ The trial court noted that the Travelers' policy language is "circuitous and to a degree, ambiguous;" and that, "[Travelers'] effort to provide an insured ... with understandable language fell somewhat short of the mark...." ⁷ Nonetheless, the Superior Court concluded that Phillips' contract interpretation would largely nullify the exclusion and that, as a result, the only reasonable interpretation was the one offered by Travelers.

We find problems with both sides' interpretations. Neither one gives full effect to all of the contract language and both could be applied in ways that a reasonable person probably would not have intended. The critical language is the second sentence of the quoted exclusion paragraph. The first sentence says that Travelers will not pay for losses caused by or resulting from the events and conditions listed in the subsections. Those include "settling, cracking, shrinking, bulging or expansion." The next sentence provides an exception to the exclusion. It says that Travelers will pay, "if 'loss' by a Covered Cause of Loss results...." What does that mean?

Phillips argues that the exception to the exclusion grants coverage for an excluded condition, such as settling, if the settling is caused by a covered cause of loss. Thus, for example, settling would not be covered if the settling were caused by poor workmanship, another excluded cause of loss. On the other hand, if the settling were caused by a fire, which is a covered cause of loss, then the settling losses would be covered. Phillips' interpretation is not entirely satisfactory because, as the trial court noted, the exception seems to be significantly broader than the exclusion. By the terms of the policy, every risk of direct physical...