United Nuclear Corp. v. Allendale Mut. Ins. Co.
| Decision Date | 15 October 1985 |
| Docket Number | Nos. 15094,15104,s. 15094 |
| Citation | 1985 NMSC 90,103 N.M. 480,709 P.2d 649 |
| Parties | UNITED NUCLEAR CORPORATION, a Delaware Corporation, Plaintiff-Appellee, v. ALLENDALE MUTUAL INSURANCE COMPANY, a Rhode Island Corporation, Defendant-Appellant. |
| Court | New Mexico Supreme Court |
Plaintiff United Nuclear Corporation (UNC) brought suit under two different policies of insurance against defendants Allendale Mutual Insurance Company (Allendale) and its subsidiary, Appalachian Insurance Company (Appalachian). Each insurer provided different coverage to UNC. UNC sought reimbursement for business interruption and property damage losses that occurred when a tailings embankment failed at UNC's Churchrock uranimum mill site. Both Allendale and Appalachian denied coverage. The trial court, finding coverage under Allendale's policy, awarded judgment to UNC for losses and damages, including attorney's fees, prejudgment interest and punitive damages. The trial court found in favor of Appalachian. Allendale appeals. We affirm in part and reverse in part.
The issues on appeal are:
I. Whether the trial court erroneously construed an exclusionary provision in Allendale's policy of insurance.
II. Whether the punitive damage award against Allendale is unlawful and unconstitutional.
III. Whether the award of attorney's fees against Allendale was unreasonable and an abuse of discretion.
IV. Whether the trial court's award of compensatory damages is supported by substantial evidence.
V. Whether the award of prejudgment interest against Allendale is error.
On July 16, 1979, the earthen tailings dam at UNC's Churchrock uranium mill failed, releasing 94 million gallons of tailings and causing the mill to be shut down. At the time of the dam failure, the Allendale insurance policy issued to UNC provided coverage for:
Collapse of buildings, structures or a material part thereof in excess of $25,000 for each occurrence, except that there shall be no liability for loss or damage caused by or resulting from flood, earthquake, landslide, subsidence or any other earth movement. Collapse shall not mean settling, cracking, shrinking, bulging, or expansion of pavements, foundations, walls, floors, ceilings or roofs. (Emphasis added.)
Allendale's refusal to honor UNC's claim for coverage was based in part on the ground that the dam failure was excluded under the "subsidence or any other earth movement" exception. Allendale also disputed the amount of damages claimed by UNC under various other provisions of the policy.
All parties agree that the "collapse" was caused by "differential settlement." Allendale argues that differential settlement is a kind of "subsidence" and cites four dictionary definitions which, by various interrelated words, draw a connection between the two terms. We would agree that there is similarity between the events described by "settlement" and by "subsidence," but the terms are not necessarily synonymous. Indeed, during argument on a motion for directed verdict, Allendale's counsel stated that he understood the terms to mean different things. One of Allendale's experts expressed an "explicit difference" in that one event was a "cause" and the other an "effect."
As UNC points out, the language used in the policy and the manner of expression indicate a distinction between "settlement" and "subsidence." The collapse provision explains that "[c]ollapse shall not mean settling * * * of pavements, foundations, walls, floors, ceilings or roofs." In its own "Collapse Guidelines for Adjustors," an exhibit at trial, Allendale advised its adjustors that "settling," unless accompanied by "significant physical deformation (falling) of the component and material impairment of the structural integrity of the structure," does not mean "collapse." UNC argues that this language demonstrates that minor settlement resulting in cosmetic damage is excluded from policy coverage but Allendale's guidelines acknowledge that, even though "settling" is specifically excluded, in some cases of settlement when it is accompanied by or results in physical deterioration and material impairment of the structure, there is coverage under the policy.
UNC's analysis is in accord with previous interpretations of similar clauses. Morton v. Great American Ins. Co., 77 N.M. 35, 419 P.2d 239 (1966), held that "settling" that impaired the structural integrity of the building constituted "collapse." In Barash v. Ins. Co. of North America, 114 Misc.2d 325, 451 N.Y.S.2d 603 (1982), the court said that "settling, shrinking or expansion" meant normal wear and tear only. Thus, we determine that the trial court did not err in finding that the "differential settlement" that caused the collapse at the Churchrock uranium mill site was not a form of "subsidence" that would have been excluded under the Allendale policy.
Alternatively, Allendale argues that if coverage is not excluded under the "subsidence" exception, loss by "differential settlement" must be excluded as "any other earth movement." Allendale construes this phrase to cover all earth movement, and relies on Kolner v. Director, Federal Emergency Management Agency, Ins. Law Rep. (CCH), 1983 Fire and Casualty Cases, p. 1129 (N.D.Ill.1983), for the assertion that "earth movement" is unambiguous. However, in Kolner all the experts agreed that the direct cause of the damage was "earth movement." The issue there was whether that exclusion applied when the earth movement itself was caused by flood--a covered peril. The question in Kolner did not concern the definition of the term of "earth movement." However, in the instant case the scope of the term "earth movement" was at issue. The trial court construed the term to cover only "other naturally occurring phenomenon" in addition to "flood, earthquake, landslide, [and] subsidence."
In construing the term "earth movement" to cover only naturally occurring phenomenon, the trial court applied the doctrine of ejusdem generis. Numerous other cases have applied the doctrine to the term "earth movement." See e.g. Peach State Uniform Service, Inc. v. American Ins. Co., 507 F.2d 996 (5th Cir.1975); Gullett v. St. Paul Fire & Marine Ins. Co., 446 F.2d 1100 (7th Cir.1971); Wyatt v. Northwestern Mutual Ins. Co. of Seattle, 304 F.Supp. 781 (D.Minn.1969); Wisconsin Builders, Inc. v. General Ins. Co. of America, 65 Wis.2d 91, 221 N.W.2d 832 (1974); Government Employees Ins. Co. v. DeJames, 256 Md. 717, 261 A.2d 747 (Md.App.1970); Anderson v. Indiana Lumbermens Mutual Ins. Co. of Indianapolis, Indiana, 127 So.2d 304 (La.App.1961). Indeed, one of Allendale's own internal communications discussed the Wyatt case and its holding and acknowledged that the term "earth movement" would most likely be construed to apply to naturally occurring phenomenon.
The general rule of construction for insurance contracts is as follows:
Terms used in a policy which have by prior judicial decisions been given a definite meaning, will be regarded as being used in view of such established construction and be governed thereby; and if the insurer continues to issue, without change, policies, clauses of which have been judicially construed, it will be considered as issuing them with that construction placed on them, even though such construction violates the literal sense of the words used.
Patterson v. United States, 233 F.Supp. 447, 449 (E.D.Tenn.1964) (quoting 44 C.J.S. Insurance Sec. 293 (1945)). Allendale issued its policy of insurance to UNC in July, 1977. All of the cases interpreting "earth movement" to apply only to naturally occurring phenomenon (cited above) were decided prior to issuance of the policy here in question. Thus, Allendale is considered to have issued its policy to UNC with the prior judicial interpretations given to the term "earth movement." Further, New Mexico recognizes this general rule of construction. See Lopez v. Townsend, 42 N.M. 601, 82 P.2d 921 (1938).
Therefore, we determine that the trial court did not err in applying the doctrine of ejusdem generis to the term "earth movement" and thereby finding that the exclusion in the Allendale insurance policy did not apply to the tailings dam spill at UNC's Churchrock uranium mill site.
The trial court found Allendale's conduct in handling and denying UNC's claim for coverage to be "willful, wanton, malicious and in reckless disregard of the rights of its insured." Based primarily on that finding, punitive damages of $25 million were assessed against Allendale. Allendale claims that the award of punitive damages is unlawful and unconstitutional because Allendale had a reasonable basis for denying coverage to UNC and questioning the amount of UNC's claimed losses. Allendale further argues that the standard of proof to determine punitive damages should be a clear and convincing standard; Allendale also argues that an award of $25 million in punitive damages is excessive. We will address Allendale's standard of proof argument first.
New Mexico has never declared the standard of proof required to establish a justification for punitive damages. Allendale urges this...
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