Sperling v. Allstate Indemnity Co.

• Decision Date: 09 November 2007
• Docket Number: No. 06-045.,06-045.
• Citation: 944 A.2d 210,2007 VT 126
• Court: Vermont Supreme Court
• Parties: Susan R. SPERLING and Kris Sperling v. ALLSTATE INDEMNITY COMPANY.

944 A.2d 210

2007 VT 126

Susan R. SPERLING and Kris Sperling v. ALLSTATE INDEMNITY COMPANY.

No. 06-045.

Supreme Court of Vermont.

November 9, 2007.

Robert G. Cain of Paul Frank + Collins, P.C., Burlington, for Plaintiffs-Appellants.

Patricia S. Orr of Powell Orr & Bredice, P.L.C., Williston, for Defendant-Appellee.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

¶ 1. DOOLEY, J.

Insureds Susan and Kris Sperling appeal the superior court's grant of summary judgment for insurer Allstate Indemnity Company (Allstate) in a first-party-coverage dispute arising out of an oil spill in their basement. Insureds contend that the court: (1) failed to apply the doctrine of efficient proximate cause; (2) failed to give a reasonable interpretation of the policy term "explosion" in denying personal property coverage; and (3) erroneously concluded that Allstate had not waived the coverage exclusion for personal property. We affirm.

¶ 2. The following facts are undisputed. Insureds purchased a homeowner's insurance policy from Allstate on September 13, 2003. On November 2, 2003, insureds heard a noise coming from their partially finished basement. After investigating the source of the noise, insureds discovered that a suitcase had fallen off of a shelf above the home-heating oil tank. The falling suitcase had broken the valve through which oil passes on the way to the tank, causing oil to pour out of the tank onto the floor. Before the fire department could stop the leak, approximately 160 gallons of oil leaked out of the tank and spread throughout the basement, causing damage to the structure and to personal property in the basement and rendering the home temporarily uninhabitable.

¶ 3. Insureds applied for coverage under their homeowner's policy for the loss caused by the oil spill. Allstate originally denied all coverage for the incident in a letter dated November 3, 2003, but later provided coverage for damage to the oil tank and the broken valve. Allstate continued to deny coverage for costs associated with cleaning up the spilled oil, damage to the basement structure, and damage to personal property contained in the basement.

¶ 4. Insureds' policy provided coverage for the "dwelling" and "other structures" under sections entitled "Coverage A" and "Coverage B," both of which were all-risk policies, extending to all "sudden and accidental direct physical loss[es] to [the dwelling and other structures] ... except as limited or excluded in [the] policy." Coverages A and B were limited by twenty-two exclusions. The relevant exclusionary language stated

[w]e do not cover loss to the property ... consisting of or caused by: ... (14) Vapors, fumes, acids, toxic chemicals, toxic gasses, toxic liquids, toxic solids, waste materials or other irritants, contaminants or pollutants.

In addition, we do not cover loss consisting of or caused by any of the following: (15) ... (e) contamination, including, but not limited to the presence of toxic ... gasses, chemicals, liquids, solids or other substances at the resident premises.

The policy also provided the following in article 23: " We do not cover loss to covered property ... when: (a) there are two or more causes of loss to the covered property; and (b) the predominant cause(s) of loss is (are) excluded under Losses We Do Not Cover, items 1 through 22 above."

¶ 5. Coverage C, which governed personal property coverage, was limited to sixteen specific perils that caused a "sudden and accidental direct physical loss." This meant that unlike the all-risk approach of Coverages A and B, Coverage C was limited to harms caused by one of the sixteen named perils. The specific peril for which insureds sought coverage is loss caused by an "explosion." Coverage C also contained a "pollution" exclusion similar to exclusions contained in Coverages A and B.

¶ 6. In response to Allstate's denial of coverage, insureds filed suit on November 1, 2004, seeking a declaratory judgment that the losses resulting from the oil spill were covered under the policy. Subsequently, the parties each filed motions for summary judgment. The superior court granted Allstate's motion in a decision dated January 18, 2006, concluding that the policy's pollution and contamination exclusions precluded coverage for the structural damage to insureds' home caused by the oil spill. The court also determined that the release of the oil was not an "explosion," and that, therefore, the policy did not provide coverage for the damage to insureds' personal property. Finally, the court rejected insureds' argument that Allstate waived its right to deny coverage on the contamination exclusions for the loss to the personal property, because it failed to invoke this exclusion in its initial denial-of-coverage letter sent on November 3, 2003.

¶ 7. On appeal, insureds argue that the superior court erred in concluding that (1) the doctrine of predominant and efficient causation did not apply because the pollution exclusions barred recovery for the damage to their basement; (2) the release of home heating oil from the storage tank was not an explosion and thus personal-property coverage under the policy was precluded; and (3) Allstate did not waive its right to rely on the pollution exclusion to deny coverage for their personal property losses.

¶ 8. We review a grant of a motion for summary judgment de novo, employing the same standard as the trial court. Anderson v. Coop. Ins. Cos., 2006 VT 1, ¶ 6, 179 Vt. 288, 895 A.2d 155. Summary judgment is appropriate where the undisputed facts demonstrate that the moving party is entitled to judgment as a matter of law. V.R.C.P. 56(c)(3). We construe an insurance contract in accordance with its terms and "the evident intent of the parties as expressed in the policy language," and interpret the terms according to their "plain, ordinary and popular meaning." Serecky v. Nat'l Grange Mut. Ins., 2004 VT 63, ¶ 17, 177 Vt. 58, 857 A.2d 775 (citation omitted). If a term is subject to more than one reasonable interpretation, "the ambiguity must be resolved in favor of the insured." Id. "Nonetheless, we will not deny the insurer the benefit of unambiguous terms inserted into the contract for its benefit." Concord Gen. Mut. Ins. Co. v. Madore, 2005 VT 70, ¶ 9, 178 Vt. 281, 882 A.2d 1152.

¶ 9. We start with insureds' causation argument. Insureds argue that, in accordance with the policy provision on causation and our law on insurance claim coverage, we must assign a predominant cause to the escape of oil and the resulting damage. Drawing on a leading treatise, insureds define that cause as the "procuring, efficient, and predominant cause, that from which the effect might be expected to follow, without the concurrence of any unforeseen circumstances." 7 L. Russ et al., Couch on Insurance § 101:46 (3d ed. 2005). They argue that the predominant cause in this case was the falling of the suitcase on the valve, and the secondary cause was the release of the oil. They then argue that the predominant cause is not excluded from coverage, and as a result, that the damage to the basement is covered by the policy.

¶ 10. In addition to drawing on the policy language, insureds rely on a variety of relevant precedents. In Town of South Burlington v. American Fidelity Co., 125 Vt. 348, 215 A.2d 508 (1965), the issue was whether the town's liability insurance carrier had a duty to defend it against a claim made by a driver allegedly injured when driving over a hole in the road caused by a leak from a culvert. The policy excluded "coverage for liability arising from the existence of streets and sidewalks." Id. at 349, 215 A.2d at 510. This Court affirmed the conclusion of the trial court, finding a duty to defend because the complaint "alleges an accident and injury having its origin in a defective culvert, as distinguished from street or sidewalk." Id. at 351, 215 A.2d at 511. We emphasized that the trial court had gone beyond the complaint and taken evidence on the cause of the accident and that evidence so clearly showed that the liability originated in the culvert "that it will be treated as controlling." Id.

¶ 11. A second relevant case is Valente v. Commercial Insurance Co., 126 Vt. 455, 236 A.2d 241 (1967), a lawsuit over the proceeds of an accidental death policy. The insured suffered major injuries as a result of a work accident, but also had a previously condition involving a partially blocked artery in his neck. Insured's medical expert opined that the primary cause of death was the injuries from the accident, while defendant's expert saw insured's arteriosclerosis of the neck as the primary cause. On appeal after a jury verdict for insured, defendant argued that the accident had to be the sole cause of death in order for insured to recover. We held that the correct rule under the policy was that the accident must be "`the efficient, or, as some courts speak of it, the predominant cause of death.'" Id. at 459, 236 A.2d at 243 (quoting Foulkrod v. Standard Accident Ins. Co., 343 Pa. 505, 23 A.2d 430, 433 (1942)).

¶ 12. Insureds point to Valente as evidence that this Court has adopted the predominant-causation test to determine causation for insurance-policy coverage. Insureds argue further that this case is similar to Town of South Burlington in that the dominant cause of the loss was the force that occurred at the beginning of the chain and led to the release of the oil. The superior court rejected the application of this causation analysis to determine coverage. The court analyzed the exclusions from real property damage coverage and found they fit into two general categories: one involving causes of harm and the other consisting of elements of harm. The court put pollution contamination in the latter category, and concluded that a causation analysis did not apply to exclusions in that category. It relied upon two main reasons for this conclusion: (1) the language of the policy...